Rio Tinto Controversy Escalates

Australian Prime Minister Kevin Rudd escalated the controversy over the arrested Rio Tinto executives by issuing a blunt warning to Beijing on Wednesday.

“Australia, of course, has significant economic interests in its relationship with China,” he said. “But I also remind our Chinese friends that China too has significant economic interests at stake in its relationship with Australia and with its other commercial partners around the world.”

“A range of foreign governments and corporations will be watching this case with interest and be watching it very closely and they’ll be drawing their own conclusions as to how it is concluded. It is in all of our interests to have this matter resolved.”

Australia is China’s biggest supplier of natural resources. Overall bilateral trade is worth some 53 billion US dollars and the iron ore trade amounts to just over a fifth of that at 14 billion.

Concern about detained Rio Tinto executives

Rudd also insisted that he would pursue every avenue to ensure that Stern Hu, an Australian national, be freed. He is one of four high-ranking executives from the Shanghai offices of the Australian mining giant who were arrested on July 5.

Chinese government spokesman Qin Gang listed the reasons behind the arrests: “These people were arrested because there was enough evidence that they had spied for foreign powers. And that they stole Chinese state secrets. Chinese economic interests and security were at risk.”

These state secrets are supposedly related to iron ore prices, stock market developments and confidential information about imports. The authorities say the executives used the information to gain unfair advantage during the recent negotiations about iron ore prices.

Several managers at Chinese steel mills have also been questioned in relation to the case. The state media say executives from all 16 of China’s major steel mills were bribed by Rio Tinto.

Misunderstanding or act of revenge?

Beijing economics professor Hu Xingdou said it could be a misunderstanding: “The People’s Republic of China was never aware of its business secrets. There are no appropriate laws. In the past few years, China has been the world’s biggest producer of steel. We have had a huge demand for raw materials. We have to import from Australia.”

“But China does not have much say in international negotiations about iron ore prices. That is abnormal. We also have economic spies here. They don’t even realise that they are betraying important state secrets when they reveal their negotiating position.”

The Western media have hinted that the investigation might be an act of revenge. In June, the Chinese aluminium firm failed in its attempts to double its amount of shares in Rio Tinto.

But economist Hu Xingdou was sceptical about this theory and said he did not think there was any “connection between the arrests and Chinalco’s failed attempt to buy up more Rio Tinto shares. This failure was the result of the usual caution on the part of foreign governments with regard to Chinese companies. To a certain extent, Chinalco’s failure was predictable. There is no reason for China to take revenge.”

He saw the investigation more as a warning on the part of the authorities to the steel mills to act as a unified whole when negotiating with foreign firms and did not think Western firms needed to worry that they could become targets of similar probes.

Author: Anne Thomas
Editor: Thomas Bärthlein