[Editor's Note: Steel is a big deal in China. The World Steel Association has noted:
China became the first country ever to produce more than 500 mmt in one year. China’s crude steel production in 2008 reached 502 mmt, an increase of 2.6% on 2007. Production volume in China has more than doubled within five years, from 222 mmt in 2002. China’s share of world steel production continued to grow in 2008 producing 38% of world total crude steel.
The interconnection of high-ranking Party officials, their extended families and the steel mills (or any national quasi-state-owned Chinese enterprise, for that matter) is well-known.
Steel cannot be made without ore. China's own supply of ore is insufficient to feed its own production. Hence, China's frenetic global search for supply. After lengthy negotiations between the Chinese steel mills and Rio Tinto, the Australian mining company, failed, the Chinese government announced the arrest of four Rio Tinto employees, all of Chinese ancestry one of whom an Australian citizen born in China. These people were charged with espionage. (China-born citizens of other countries are still considered sons and daughters of China and are far more likely to be game for detention than whites.)
Shortly thereafter, after much high-level rancor between the Chinese and Australian governments, China made use of the steam valve to let off some international pressure:
Chinese authorities have backed down from accusing four Rio Tinto executives of espionage but restated the charges yesterday to include stealing commercial secrets and bribery. Official news agencies said that investigators had discovered that the four employees of the Anglo-Australian mining group had obtained commercial secrets about China’s steel and iron industries through “improper means and were involved in bribery”. Rio Tinto said that its employees were innocent and that it would fight any charges.
I would take issue with the assertion that China was in any way backing down.
The case has generated a great deal of discussion among attorneys involved with China. The following post I found especially interesting and worthwhile reading. Today's post has been graciously provided by Vivienne Bath, Senior Lecturer and Director of the Centre for Asian and Pacific Law, University of Sydney. Ms. Bath writes that the opinions expressed are entirely her own and do not represent the views of Sydney University.]
Comments on the Stern Hu/Rio Tinto Case
The case of Stern Hu and his colleagues continues to present a number of difficult issues. The first is that when Stern Hu and his colleagues were arrested, the allegation seemed to be that they were being investigated for theft of state secrets – an offence which is not clearly defined and is potentially very far-reaching – even though the information in question appeared to be commercial information of state-owned enterprises. Given that the Chinese Ambassador to Australia spent considerable time making speeches when the Chinalco-Rio Tinto deal was under consideration saying that state-owned does not mean state run and the primary aim of enterprises like Chinalco is to make money, the state secrets allegation appeared to confirm much of what the Australian Opposition and the Australian press had been saying about the proposed investment. If the original allegation had been commercial bribery and infringement on business secrets, there would undoubtedly have been a discussion on why Rio’s employees were targeted, but nothing like the fuss that the state secrets allegation created.
It should be noted that most prosecutions for bribery in China concentrate on the officials or executives who are bribed rather than the companies or people who did the bribing. Most cases involving the “bribers” have been brought by the US authorities (although Australia has its own version of FCPA, no prosecutions have ever been brought under the legislation).
It is also not clear why it is only the employees have been targeted if the allegation is commercial bribery. Why not Rio itself? If bribes were paid, where did the money come from and for whose benefit were they paid?
Another question is whether the fact that the employees are all either Chinese or, in Stern Hu’s case, formerly Chinese makes a difference to their position. James Peng, the Australian who was tried and put in goal for 6 years in China over what appeared to be primarily a commercial dispute, was also formerly a Chinese national. Chinese nationals (and former nationals) do tend to have much better access to sources in China and to be able to work with their Chinese contacts in a way that non-Chinese Australians are generally not able to do, but that does not necessarily mean that they are more inclined to act dishonestly. It does seem, however, that they are more exposed.
The last point is the motivation for the charges and the question of what message, if any, is being sent – and to whom. It appears that the Stern Hu case is probably related to the iron ore negotiations, particularly since, according to reports, various executives in Chinese steel companies have also been detained. It comes at the same time as other significant developments in the generally friendly Australia-China relationship, however.
On the one hand, stresses in the Australia-China relationship include the failure of the Chinalco-Rio deal, which was due to the Rio shareholders rather than the Australian government. The Australian government (perhaps fortunately for it) was never required to make a ruling, although this may not be believed in China, where the role of foreign governments in business is often over-estimated. In addition, from the Australian point of view, the relationship has not been at all assisted by the efforts of the Chinese Embassy and the Consulate to try to induce the government to refuse a visa to Radiya Kadeer (who actually has close relatives in Australia and has made several visits in the past) and on the Melbourne Film Festival and the National Press Club not to show a documentary about her. On the other hand, an announcement has just been made of a 20 year LNG gas purchase contract between PetroChina (which is, of course, also state-owned) and Exxon for the purchase of gas from the Gorgon field off Western Australia – reportedly the largest trade deal ever signed involving Australia. If the message in the case of Stern Hu and his colleagues is to the Australian government, therefore, it is completely unclear what it is. If it is directed at Rio Tinto and the Chinese steel companies, the ramifications have been considerably broader than intended.
