CANBERRA/BEIJING (Reuters) - A Chinese steel executive detained along with four Rio Tinto employees is under investigation for leaking China’s “bottom line” in iron ore price negotiations, a source with knowledge of the probe said on Friday.
Tan Yixin, the head of iron ore imports for state-owned steelmaker Shougang, has been taken into custody on suspicion of “revealing China’s negotiating strategy” to Anglo-Australian miner Rio Tinto Ltd, the source told Reuters, requesting anonymity.
The shock detentions have cast a shadow on relations between Beijing and Canberra, whose economies have been welded together in recent years by China’s huge demand for metals and minerals.
As Australia sought to avert the diplomatic row, the China Securities Journal said Shanghai’s State Security Bureau accused the three local Rio staff and senior Australian executive Stern Hu of bribing unidentified Chinese steelmakers during tense iron ore price negotiations this year.
“This seriously damaged China’s economic security and interests,” said the paper, which is published by the state-run Xinhua news agency. “The activities of Stern Hu and the others violated Chinese law as well as international business morality.”
Asked if negotiating strategy meant iron ore prices, the Reuters source said: “Yes, China’s bottom line.”
Shougang officials could not immediately be reached for comment.
China’s ambassador to Australia was summoned to the Foreign Ministry late on Thursday to discuss what local newspapers called a fast-escalating crisis.
A Rio spokesman expressed surprise at the turn of events, saying the group was “not aware of any evidence that would support these allegations.”
Chinese security authorities detained the four Rio employees on Sunday, alleging they were involved in stealing state secrets.
Chinese law is vague on what that constitutes, but economic data such as gold holdings and currency movements have at different times been deemed secret, so it would not be a stretch for information about a lucrative state-owned industry such as steel to be included.
Australian Foreign Minister Stephen Smith told reporters in Perth that China appeared to have a “broader” definition of what amounted to industrial espionage than many other countries.
“It’s very hard for the Australian government to see the connection between what might be daily commercial and economic negotiations and national security issues,” he said.
Smith said Canberra was treading warily.
“Such a serious matter is a matter which goes very much to the relationship between Australia and China, so we are treating this as a very, very sensitive and difficult issue,” he said, adding that Hu had been well treated.
He said the latest row would not derail negotiations with China on a free trade pact, under way since 2005.
The detentions came after the two sides missed a June 30 deadline for iron ore talks and Rio’s ditching of a $19.5 billion (12 billion pound) tie-up with Chinese state metals firm Chinalco last month.
Chinalco, Rio’s major shareholder, said the arrests were unrelated to dealings between the two firms and expressed “mutual concern for the current situation with their staff.”
Australian Prime Minister Kevin Rudd, a Mandarin-speaking China expert, promised all steps needed to secure the release of the executives and Trade Minister Simon Crean left for China on Friday.
But Rudd faced criticism at home for not intervening with Chinese President Hu Jintao on behalf of Hu and his employer.
“Mr Stern Hu is one of us, he is a fellow Australian. He has been denied basic human rights in China, and the Australian Prime Minister Mr Rudd should take this matter up directly and personally with the Chinese government,” conservative opposition leader Malcolm Turnbull said.
“It is not acceptable for an Australian citizen to be seized by the secret police and held without access to a lawyer, to his family, to his employers or to consular officials for more than five days.”
The Australian dollar, knocked sharply lower on Thursday amid China export ructions, steadied on Friday, although the market was closely following developments. Rio shares traded up to 1.9 percent higher after a Standard & Poors rating upgrade.
China is Australia’s second-largest export customer behind Japan, buying A$36 billion (17 billion pound) of mostly commodities in the 11 months ended May 2009. In 2008, more than half of China’s imports from Australia were iron ore.
Australia, along with Chile, is the largest recipient of Chinese investment this year, worth $3.9 billion, with Chinese companies anxious to lock in access to resource exports.
Additional reporting by Tom Miles and Benjamin Kang Lim in Beijing, Ben Blanchard and Alfred Cang in Shanghai, Fayen Wong in Perth; Editing by Nick Macfie