China pulls back from tough words on Rio Tinto

Tue, Aug 11, 2009, 01:00

CHINA HAS appeared to back away from some of the toughest comments yet in an ongoing row over allegations that key executives from Australian mining giant Rio Tinto have been stealing Chinese state secrets.

Four Rio Tinto employees, including Australian national Stern Hu, were detained on suspicion of espionage on July 5th, although they have not been formally charged. They are suspected of paying bribes for information on Chinas negotiating stance on the price of iron ore.

In a stinging essay posted on a state security website at the weekend, the National Administration for Protection of State Secrets, a commentator said Rio Tinto employees had been engaged in industrial espionage for six years and their deceit had led to Chinese steel mills overpaying for iron ore by 700 billion Chinese yuan, or €72 billion.

The essay said Rio had “curried favour, bribed, pried out intelligence and gained things by deceit,” and had “caused tremendous harm to the national economic security and interest.”

The article also said that “traitors” were getting rich at the expense of Chinese businesses.

The bluntness of the essay’s language on a website so close to China’s powerful state secrecy agency appeared to indicate China was bringing the case to a new level that threatened to affect Rio’s long-term relationship with the country.

Shares in Rio were hit by the spying allegations, although Australia’s foreign ministry said the latest accusations were nothing new.

The author of the report, Jiang Ruqin, subsequently told news agencies that the report was his own opinion and that he was not acting on any new information. The official from Jiangsu province in the east of China said he was not actually involved in the case himself.

Relations between Australia and China, its second biggest trading partner, have been under strain since the detentions, although Chinese government officials insist the case is an independent judiciary issue and should not affect broader Sino-Australian ties.

“The allegations referred to on the national secrets protection bureau website are not new,” a spokeswoman for Australian foreign minister Stephen Smith said in a statement. “The government has always said the Stern Hu case was complex and involved serious allegations.

“The government has urged the Chinese authorities to deal with his case expeditiously.”

China is the world’s largest consumer of iron ore and the matter has cast a shadow over the 2009 iron ore price negotiations. Some analysts believe China is keen to show strength after the embarrassing collapse in June of a bid by the Chinese state company Chinalco to buy a €13.7 billion stake in Rio Tinto.

Rio abandoned the deal in favour of a tie-up with fellow Anglo-Australian miner, BHP Billiton, just four months after agreeing to what would have been China’s biggest overseas investment.

China has been criticised for a lack of transparency in how it is dealing with the case, and some foreign investors say the issues raised by the investigation has made them cautious about investing in China.

In recent days there have been signs the Chinese authorities were moving the emphasis of the investigation away from more serious charges of espionage to less serious charges of bribery.