July 16, 2009 / 6:01 AM / in 11 years

China, Australia trade warnings on Rio

BEIJING (Reuters) - Australia and China traded warnings on Thursday over Rio Tinto (RIO.L)(RIO.AX) employees detained for spying, as the United States urged Beijing to ensure transparency and fair treatment for staff of foreign companies.

Journalists stand outside a Rio Tinto office in Shanghai July 9, 2009. REUTERS/Aly Song

Over a week after detaining an Australian Rio executive and three of his Chinese colleagues on allegations of stealing state secrets related to sensitive iron ore price negotiations, China’s Foreign Ministry warned Australia against interference.

“We resolutely oppose anyone deliberately whipping up this case or trying to interfere in China’s judicial independence,” ministry spokesman Qin Gang told reporters. “This is not in Australia’s interest.”

Australian Foreign Minister Stephen Smith said he did not expect relations to be harmed by the case, but warned: “China itself does need to think about whether its handling of this matter has any adverse implications for it.”

Smith and Chinese officials met on Thursday on the sidelines of the Non-Aligned Movement summit in Egypt’s Red Sea resort of Sharm el-Sheikh, but both sides declined to comment on their talks.

The Rio detentions show how the general murkiness of state secret laws puts foreign investors at risk when dealing with state-owned entities and potentially sensitive economic information, a point U.S. Commerce Secretary Gary Locke raised during a CNN interview.

“These are of course of great concern with respect to U.S. investors and multinational companies from around the world that have projects here,” Locke said.

“We need to have transparency, we need to have assurances and confidence that people working for these multinational companies ... will be treated fairly.”

Locke said he stressed to Chinese officials that they communicate with the Australian government on the case. He did not raise the issue during meetings with the Chinese premier.

STATE DATA OR STATE SECRETS?

Rio Tinto’s China team managed operational details of term contracts for iron ore, a key ingredient in steel making, as well as tracking market information.

Information in China is often widely available before it is officially released. On Thursday, for example, a Chinese paper published the second quarter GDP data, citing an official who had given a speech the day before.

At the official press conference later that morning to release the second-quarter data, National Bureau of Statistics spokesman Li Xiaochao said the leak would be investigated but stopped short of saying it constituted a “state secret.”

But in an op-ed in the Shanghai Securities News, a researcher from the Ministry of Commerce said that China’s bottom line in iron ore talks was definitely a state secret.

The detentions have complicated annual negotiations to set the price at which mills import contracted iron ore.

This year’s negotiations have been particularly fraught, since they coincided with the collapse of a deal by Chinese flagship aluminium firm, Chinalco, to increase its stake in Rio.

Instead, Rio and BHP plan to merge their iron ore operations in western Australia, although they say they will keep marketing separate. The Chinese steel industry fears the tie-up between the two Australian giants will allow them to keep prices higher.

In the absence of a formal settlement between the Chinese steel industry and Rio Tinto and BHP Billiton, major Chinese mills had agreed to pay 33 percent less than 2008 prices — in line with settlements reached by Japanese and Korean mills, sources told Reuters.

The annual negotiations are “definitely not over,” a China Iron and Steel Association negotiator told the Caijing news organisation, but acknowledged some mills had agreed to a 33 percent cut.

Traditionally, all the mills accept a settlement reached between any mill and any of the three miners, BHP, Rio and Vale.

China’s flagship steel mill, Baosteel, said that none of its employees had been detained or assisted in the investigation. Chinese media had earlier reported the lead negotiator for previous years’ talks, from Baosteel, was among those investigated in the probe.

Additional reporting by Doug Palmer and Ben Blanchard in Beijing and Michael Perry and Jim Regan in Sydney; Editing by Nick Macfie

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