China escalated its confrontation with Rio Tinto earlier this week when it accused the mining company of industrial espionage stretching back six years at a potential cost to the country of $100-billion.
Four Rio Tinto employees, including an Australian citizen, have been held in Shanghai for the past month and were formally charged this week on suspicion of illegally obtaining commercial secrets and of bribery. These are lesser charges to accusations that they had stolen state secrets. The charges also carry lower penalties of three to seven years in jail, Reuters reported.
Australian citizen Stern Hu, Rio’s chief iron ore negotiator, and three Chinese colleagues were detained on July 5 on suspicion of commercial spying. No charges have been brought, but the state news agency, Xinhua, has reported that Hu was facing charges of obtaining sensitive industrial information through “abnormal means”.
The incident could also signal a potential hardening of conditions for foreign companies doing business in China. The country’s national administration for the protection of state secrets said the case should force Chinese officials and companies to do more to protect sensitive commercial information and foreign businesses in China must come under stricter controls to deter them from spying.
“Our country has entered a peak period of commercial espionage warfare and the threat to important economic intelligence and security of national economic activity increases by the day,” the report claimed.
It said contacts between local officials, experts, managers and foreign businesses should be more strictly controlled and that “traitors” were enriching themselves at the expense of Chinese businesses.
A Rio Tinto spokesperson in London said: “We are clearly very concerned about our employees who have now been detained for some time. We believe that they acted at all times with integrity and in accordance with Rio Tinto’s strict and publicly stated code of ethical behaviour.” The state secrets agency’s report said Rio Tinto’s commercial spying involved “winning over and buying off, prying out intelligence … and gaining things by deceit” over six years.
It said: “The large amount of intelligence and data from our country’s steel sector found on Rio Tinto’s computers and the massive damage to our national economic security and interests are plainly obvious.” It said Rio’s alleged spying meant Chinese steel-makers paid 700-billion yuan (about R818-billion) more for imported iron ore than they otherwise would have.
The accusations will send shockwaves through the industry as China consumes more than half of the world’s iron ore, turning it into steel for making goods it exports to the West. Sales to China by Rio’s operations in Australia account for about one-fifth of the company’s $60-billion annual turnover.
In February Rio said that Chinese state-owned aluminium group Chinalco would double its stake in Rio — listed in both London and Australia — to 18% in exchange for $20-billion of investment. Rio’s British shareholders protested and the deal was scrapped, to the annoyance of the Chinese authorities. Rio Tinto did a rights issue among existing shareholders instead.
The detentions followed months of fraying relations between China and Australia — a huge exporter of iron ore. The sides have been locked in talks about iron ore prices, which ran over a deadline of June 30.
They were subsequently settled when Chinese steel mills agreed to the same 33% cut in annual iron ore prices that other Asian steelmakers had agreed to, even though the Chinese had wanted a 45% cut in the face of the most severe global recession for decades. —