Rio Tinto 'Spies' - What the F***??

**citanon** · 11 Jul 09, 07:30

Let's not jump to conclusions yet. There's a possibility that Hu was actually committing or directing commercial espionage. Remember the incident where HP used illegal means to obtain phone records for its board members? That one involved the Chairwoman of the company.

**Bigfella** · 11 Jul 09, 12:00

Originally Posted by xinhui

Bigfella,

I would wait until some solid evidences before jumping into conclusion.

Xinhui,

My initial shock was based on my thinking in terms of the definition of 'spying' that would apply in Australia. I was assuming they meant the sort of thing we would understand to be 'national security'. I'm pretty sure trying to get hold of commercial information from a rival wouldn't get this sort of response in Oz.

I have no problem believing that these guys tried to get hold of some sort of commercial information. What I would be curious to know from you, OOE & any others here who follow China more carefully is if you think there is a story behind the story. Is this consistent with the way China treats all such cases, or is the government doing this to achieve some other outcome?

**Officer of Engineers** · 11 Jul 09, 14:31

BF,

Like anything to do with China, it is best to wait for some facts.

**Bigfella** · 11 Jul 09, 15:02

Originally Posted by Officer of Engineers

BF,

Like anything to do with China, it is best to wait for some facts.

Thanks.

It is being followed keenly down here. From this distance reading the motives of the Chinese government at any given time reminds me of the old days of 'Kremlin watching'. So often things are not as they seem at first.

**xinhui** · 11 Jul 09, 18:41

Here is what is known.

1. the failed attempt for Chinalco to take over Rio
2. the re-pricing by steelmakers from China, Korea and Japan.

two weeks ago both the Japanese and Korean have reached an agreement with Rio to a 25% re-pricing but the Chinese side refused. My initial reaction was that those three exec had insider information on how much the Chinese steelmakers are willing to pay.

Even if chinalco successfully take over Rio, Chinese steelmakers still have re-negotiate pricing for those ore just like everyone else.

**xinhui** · 12 Jul 09, 22:24

Ha, look at today's NYT

July 11, 2009
Espionage Charges in China May Be Linked to Negotiations Over Iron Ore Prices
By DAVID BARBOZA

SHANGHAI — China’s detention of four employees of the Anglo-Australian mining giant Rio Tinto on spying charges this week is tied to evidence that they obtained confidential state documents during negotiations with Chinese steel makers over iron ore prices, people with direct knowledge of the case said Friday.

Stern Hu, Rio Tinto’s top iron ore negotiator with China and an Australian citizen, was detained in Shanghai on Sunday on suspicion of spying, stealing state secrets and causing economic harm to the nation, in a case that has rocked the Chinese steel and iron industry. Three other Chinese employees who had some role in Rio Tinto’s iron ore negotiations with Chinese steel mills have also been detained and accused of violating China’s state secrets law.

Now, several other executives in the iron ore trade in China are also under investigation and at least one Chinese executive has been detained, possibly for passing state secrets to the Rio Tinto employees, according to China’s state-run news media and people familiar with the investigation.

Early Friday, Eastday.com, a Web site partly controlled by the Shanghai government, said that the investigation was linked to the pricing of iron ore and that the Chinese authorities were looking into whether Rio employees paid bribes to Chinese officials in exchange for confidential government documents in an effort to gain an edge in negotiations over iron ore contracts.

The case could pose serious challenges for Rio Tinto, one of the world’s biggest mining companies, as it tries to complete the negotiations this year with China.

The case also seems likely to turn into a larger dispute between China and Australia about the nature of the Chinese state secrets law and whether it should apply to foreigners doing business with China’s state-owned companies.

Although China has accused Rio’s executive, Mr. Hu, of spying on the country, there is growing evidence the case is centered on his role as lead negotiator for Rio Tinto in its dealing with Chinese steel companies.

This week, Rio Tinto and Australian officials said they were shocked by the accusations. In a statement issued Friday, Rio Tinto said, “We are not aware of any evidence that would support these allegations.”

Rio Tinto officials say that they have not been informed by China of any charges and that they have had no contact with their four employees since they were detained.

The Australian government on Friday questioned whether China’s state security law was being invoked too broadly to cover business dealings.

At a news conference, the Australian foreign affairs minister, Stephen Smith, said, “Frankly, it’s difficult for a nation like Australia to see a relationship between espionage or national security and what appear to be suggestions about commercial or economic negotiations.”

The investigation comes at a particularly thorny time, because China is still in tense negotiations with some of the world’s biggest iron ore producers, including Rio Tinto, over the price of iron ore imports. Those negotiations could determine the value of tens of billions of dollars’ worth of iron ore imports into China this year and next year and also could affect global prices.

Iron ore prices are negotiated on a yearly basis, to give the market participants a degree of certainty in a business that demands major outlays to underwrite the extraction of the ore. In a down economy, some of the major steel-producing nations, like Japan and South Korea, have already accepted a price 33 percent lower than last year’s.

China, which imports about half the world’s supply of iron ore each year, has dug in its heels and is holding out for an even larger reduction, of as much as 45 percent. For Australia, which sends about 80 percent of its ore to China every year, that price differential is of paramount importance.

Allegations of spying are also threatening to create more friction between China and Australia since Rio Tinto’s decision last month to scrap a planned $19.5 billion deal with Chinalco, a Chinese state-owned company. Some Australians see the arrests of the Rio Tinto employees as retaliation.

Relations had begun to fray earlier in the year because many Australians had grown worried about the prospect of China taking a big stake in Rio Tinto and other Australian companies and gaining control over some of the country’s most valuable resources.

Chinese officials have also grown angry because of what they see as protectionist or anti-Chinese sentiment behind efforts to block Chinese companies from securing long-term supplies of raw materials.

“The message this sends to any Australian or international business executive is that you can lose more than your business deal if you cross these people,” Michael Danby, a federal minister with the Australian Labor Party, told the Australian Broadcasting Corporation on Friday.

Bettina Wassener contributed reporting from Hong Kong, and Chen Yang from Shanghai.
http://www.nytimes.com/2009/07/11/wo...gewanted=print

**Bigfella** · 13 Jul 09, 02:59

Interesting article. Thanks.

Just a small correction:

“The message this sends to any Australian or international business executive is that you can lose more than your business deal if you cross these people,” Michael Danby, a federal minister with the Australian Labor Party, told the Australian Broadcasting Corporation on Friday.

Michael Danby is not a minister and hopefully will never become one. He chairs a few parlaimentary sub-committees (including Foreign Affairs) and has campaigned for Tibetan independence. Last month he led an unofficial group of parlaimentarians on a trip to Dharamsala, India to meet leaders of the Tibetan exile community.

**Bigfella** · 13 Jul 09, 10:33

From the Melbourne Age (full text at link):

Rio arrests reflect Beijing financial jitters

Rio arrests reflect Beijing financial jitters

July 13, 2009 - 4:52PM

China's arrest of Rio Tinto staff for spying points to economic worries in Beijing, a security analyst said, as Fairfax newspapers reported that China's president endorsed the Rio investigation.

The arrest of Rio's top iron ore salesman in China helped push down shares on Monday in BHP Billiton and Rio Tinto, the world's two largest iron ore firms respectively. The arrests and protracted price talks between Rio and Chinese steel mills unsettled investors, traders said.

The arrests have cast a shadow over Australia-China ties, which have been key to Australia avoiding a recession in 2009, and placed pressure on Prime Minister Kevin Rudd, a former Beijing diplomat and fluent Mandarin speaker, to personally contact Chinese President Hu Jintao.

Anglo-Australian miner Rio was in intense price negotiations with China when Australian Stern Hu and the three others were detained in Shanghai, accused of stealing state secrets and bribing Chinese steelmakers for information.

The investigation into Rio appears to be part of a realignment of how China manages its economy in the wake of the global financial crisis, with spy and security agencies promoted to top strategy-making bodies, Fairfax newspapers said today.

The nine-member standing committee of China's Communist Party, led by President Hu, had taken more control over economic decisions at the expense of the State Council, led by Premier Wen Jiabao, it said, quoting anonymous Chinese economic advisers. The president endorsed the Rio investigation, it said....

**xinhui** · 13 Jul 09, 18:42

Bigfella,

President Hu, had taken more control over economic decisions at the expense of the State Council, led by Premier Wen Jiabao, it said, quoting anonymous Chinese economic advisers.

I have a hard time buying that statement, if it is truth, that means a power struggle at the very top and this type of fight would be all over the "channels" by now, and I am not seeing anything in the normal rumor mills.

But one thing is clear, as China expends here "economic" interest, it often come across "political" lines that requires presidency's attention, hack, just look at the mess of the RIO or Unifco 76 deals, or that mining deal in Vietnam. China has both the image and real problems, they know that.

I am stilling waiting to see the A-stan mining deal to became a political firestorm but so far so quit and I think the "political" decision in Washington might have something to do with it.

**captain** · 16 Jul 09, 19:28

Originally Posted by Officer of Engineers

BF,

Like anything to do with China, it is best to wait for some facts.

So we have waited a little while and and some more facts (reported) have emerged.

When Hu was arrested the Chinese authorities aslo confiscated Hu's computer and those of the Rio offfice.
Those computers contained all the details of the metalurgical stocks, forward production plans/estimates, world wide contracts and no doubt a great deal of other proprietory infiormation that no one would have access to unless they sat on the board of Rio.
That information is gold and stolen, not bought by any means.

This incident is a very hamfisted effort and Chinese claims that Hu was trying to bribe Chinese steel mills in a sellers market is not going to float.

The rest of the world wide business community is no doubt watching and learning an important lesson about doing business with the Chinese state.

Huge mining companies like Vale, Rio and BHP can and very likely will exact a price in the form of premiums that will now be built into any supply contracts of raw materials until such time that they regain confidence that China will play the game according to the rules.

The problem for the Chinese now is, how to dig themselves out of this mess before it gets worse and who is going to be the sacraficial schmuk that pays for it in an effort to save face without it looking obvious.

Cheers.

**xinhui** · 16 Jul 09, 20:05

Small mills have long complained about what they see as an unfair system. The practice violates industry regulations, as well as the fixed contract agreements signed with Rio Tinto and other mining companies, analysts say.

The government has repeatedly warned against this type of speculative trading, most recently in a regulation released in February.

July 16, 2009
Rio Tinto Gave Bribes to Many, China Says
By DAVID BARBOZA

SHANGHAI — China stepped up its campaign against the Anglo-Australian mining giant Rio Tinto on Wednesday, saying the company had bribed virtually every one of China’s big steel makers.

The sweeping allegation, published on the front page of China Daily, the country’s official English-language newspaper, further inflamed a case that has rocked the country’s steel industry, strained relations between China and Australia and worried multinational companies doing business here.

The case began more than a week ago, when Chinese authorities detained four Rio Tinto employees, including an Australian national, on suspicion of espionage, stealing state secrets and harming the nation’s economic interests and security.

On Wednesday, high-level officials of both the Australian and United States governments expressed concern. Gary Locke, the United States secretary of commerce, who is visiting Beijing this week, told CNN that he would raise the case directly with top Chinese leaders, including Prime Minister Wen Jiabao.

In its report, China Daily, which regularly publishes the government’s official version of events, said Rio Tinto employees bribed executives from 16 Chinese steel companies, all members of the China Iron and Steel Association, to get access to confidential industry data. The paper attributed the allegation to an unidentified “industry insider” and did not identify the 16 companies.

A Chinese government-controlled Web site said last week that Rio Tinto employees had bribed Chinese steel executives to gain access to government documents that could have given Rio Tinto an edge in its annual iron ore negotiations with China’s state-owned steel mills.

But Wednesday’s report is the first time a government publication has alleged that many of the country’s biggest steel companies may be involved.

Rio Tinto has expressed shock at the allegations and said that the company has strict ethics policies that forbid bribery. On Wednesday, a company spokesman declined further comment.

Several Australian officials have criticized the detention of the Rio Tinto employees and suggested that Beijing is retaliating against Rio Tinto for calling off a $19.5 billion deal last month that would have given a Chinese state-owned company called Chinalco a large stake in the mining giant.

On Wednesday, the Australian prime minister, Kevin Rudd, warned China to tread carefully in handling the case, suggesting that it could affect international public opinion and foreign investment in China.

“A range of foreign governments and corporations will be watching this case with interest and will be watching it very closely,” Mr. Rudd told reporters on Wednesday, according to Reuters. “And they will be drawing their own conclusions as to how it is conducted.”

Mr. Locke, in a CNN interview, said that American companies operating in China were concerned about transparency and fairness in the Rio Tinto case.

Yao Jian, a spokesman for China’s Commerce Ministry, responded to concerns on Wednesday, saying the Rio Tinto case would not affect China’s investment environment. The government has said it is an isolated case of espionage that seriously harmed the country’s economic security and interests.

Despite the China Daily report, several large Chinese steel companies, including Baosteel, denied on Wednesday that they were under investigation in the Rio Tinto case.

“Baosteel has no executive cooperating with the government investigation or being investigated,” said Meng Haibiao, a company spokesman.

Jinan Steel, another big steel producer, called the China Daily report “fake news,” insisting that no executive at the company was under investigation.

But at Laiwu Iron and Steel, a spokesman who gave his name only as Mr. Liu, said a company shipping executive was cooperating with the Rio Tinto investigation.

In the past week, China has questioned or detained at least 10 steel executives, including shipping agents, traders and members of the China Iron and Steel Association, according to the state-run news media and interviews with industry officials.

An executive at Shougang Steel, a big steel maker, was detained in the case last week.

Although Beijing says the Rio Tinto case involves state secrets, that has not stopped state-run newspapers from printing details about it. Many of the articles have also described rampant corruption in the trading of iron ore.

More than a dozen industry officials, steel analysts and traders interviewed this week also said that China’s iron ore trade was plagued by corruption.

Experts blame China’s two-tiered system for purchasing iron ore for the corruption. While big steel mills are allowed to negotiate long-term fixed price contracts, most small and medium-size steel mills are supposed to buy from the spot market, the more volatile open market.

The system, analysts say, has created huge arbitrage opportunities, allowing big steel mills with fixed contracts to buy far more supplies than they need and then profitably sell excess supplies to smaller mills on the black market.

“There’s a huge underground arbitrage market in China,” said Ren Qiang, general manager at the Zibo Antai Import and Export Company, which deals in the iron ore trade.

Small mills have long complained about what they see as an unfair system. The practice violates industry regulations, as well as the fixed contract agreements signed with Rio Tinto and other mining companies, analysts say.

The government has repeatedly warned against this type of speculative trading, most recently in a regulation released in February.

But regulators rarely enforced the rules in 2007 and early 2008, when iron ore prices were skyrocketing, experts say.

Analysts say the two-tier system may have even created friction between big ore producing companies, like Rio Tinto, and the government-controlled China Iron and Steel Association, which represents large steel mills in annual fixed contract negotiations.

By locking in low fixed contract prices, analysts say, association members could trade or sell iron ore on the black market.

But in recent years, the world’s big iron ore producers, like Rio Tinto, have battled with the association over pricing.

The two sides failed to reach an agreement last month on prices for this year’s contracts. One of the lead negotiators for Rio Tinto was Stern Hu, an Australian national who was one of the four Rio Tinto employees detained on July 5.

Chen Yang contributed research.

http://www.nytimes.com/2009/07/16/wo...gewanted=print

**diablo49** · 16 Jul 09, 20:52

Originally Posted by xinhui

July 16, 2009
Rio Tinto Gave Bribes to Many, China Says
By DAVID BARBOZA

SHANGHAI — China stepped up its campaign against the Anglo-Australian mining giant Rio Tinto on Wednesday, saying the company had bribed virtually every one of China’s big steel makers.

The sweeping allegation, published on the front page of China Daily, the country’s official English-language newspaper, further inflamed a case that has rocked the country’s steel industry, strained relations between China and Australia and worried multinational companies doing business here.

The case began more than a week ago, when Chinese authorities detained four Rio Tinto employees, including an Australian national, on suspicion of espionage, stealing state secrets and harming the nation’s economic interests and security.

On Wednesday, high-level officials of both the Australian and United States governments expressed concern. Gary Locke, the United States secretary of commerce, who is visiting Beijing this week, told CNN that he would raise the case directly with top Chinese leaders, including Prime Minister Wen Jiabao.

In its report, China Daily, which regularly publishes the government’s official version of events, said Rio Tinto employees bribed executives from 16 Chinese steel companies, all members of the China Iron and Steel Association, to get access to confidential industry data. The paper attributed the allegation to an unidentified “industry insider” and did not identify the 16 companies.

A Chinese government-controlled Web site said last week that Rio Tinto employees had bribed Chinese steel executives to gain access to government documents that could have given Rio Tinto an edge in its annual iron ore negotiations with China’s state-owned steel mills.

But Wednesday’s report is the first time a government publication has alleged that many of the country’s biggest steel companies may be involved.

Rio Tinto has expressed shock at the allegations and said that the company has strict ethics policies that forbid bribery. On Wednesday, a company spokesman declined further comment.

Several Australian officials have criticized the detention of the Rio Tinto employees and suggested that Beijing is retaliating against Rio Tinto for calling off a $19.5 billion deal last month that would have given a Chinese state-owned company called Chinalco a large stake in the mining giant.

On Wednesday, the Australian prime minister, Kevin Rudd, warned China to tread carefully in handling the case, suggesting that it could affect international public opinion and foreign investment in China.

“A range of foreign governments and corporations will be watching this case with interest and will be watching it very closely,” Mr. Rudd told reporters on Wednesday, according to Reuters. “And they will be drawing their own conclusions as to how it is conducted.”

Mr. Locke, in a CNN interview, said that American companies operating in China were concerned about transparency and fairness in the Rio Tinto case.

Yao Jian, a spokesman for China’s Commerce Ministry, responded to concerns on Wednesday, saying the Rio Tinto case would not affect China’s investment environment. The government has said it is an isolated case of espionage that seriously harmed the country’s economic security and interests.

Despite the China Daily report, several large Chinese steel companies, including Baosteel, denied on Wednesday that they were under investigation in the Rio Tinto case.

“Baosteel has no executive cooperating with the government investigation or being investigated,” said Meng Haibiao, a company spokesman.

Jinan Steel, another big steel producer, called the China Daily report “fake news,” insisting that no executive at the company was under investigation.

But at Laiwu Iron and Steel, a spokesman who gave his name only as Mr. Liu, said a company shipping executive was cooperating with the Rio Tinto investigation.

In the past week, China has questioned or detained at least 10 steel executives, including shipping agents, traders and members of the China Iron and Steel Association, according to the state-run news media and interviews with industry officials.

An executive at Shougang Steel, a big steel maker, was detained in the case last week.

Although Beijing says the Rio Tinto case involves state secrets, that has not stopped state-run newspapers from printing details about it. Many of the articles have also described rampant corruption in the trading of iron ore.

More than a dozen industry officials, steel analysts and traders interviewed this week also said that China’s iron ore trade was plagued by corruption.

Experts blame China’s two-tiered system for purchasing iron ore for the corruption. While big steel mills are allowed to negotiate long-term fixed price contracts, most small and medium-size steel mills are supposed to buy from the spot market, the more volatile open market.

The system, analysts say, has created huge arbitrage opportunities, allowing big steel mills with fixed contracts to buy far more supplies than they need and then profitably sell excess supplies to smaller mills on the black market.

“There’s a huge underground arbitrage market in China,” said Ren Qiang, general manager at the Zibo Antai Import and Export Company, which deals in the iron ore trade.

Small mills have long complained about what they see as an unfair system. The practice violates industry regulations, as well as the fixed contract agreements signed with Rio Tinto and other mining companies, analysts say.

The government has repeatedly warned against this type of speculative trading, most recently in a regulation released in February.

But regulators rarely enforced the rules in 2007 and early 2008, when iron ore prices were skyrocketing, experts say.

Analysts say the two-tier system may have even created friction between big ore producing companies, like Rio Tinto, and the government-controlled China Iron and Steel Association, which represents large steel mills in annual fixed contract negotiations.

By locking in low fixed contract prices, analysts say, association members could trade or sell iron ore on the black market.

But in recent years, the world’s big iron ore producers, like Rio Tinto, have battled with the association over pricing.

The two sides failed to reach an agreement last month on prices for this year’s contracts. One of the lead negotiators for Rio Tinto was Stern Hu, an Australian national who was one of the four Rio Tinto employees detained on July 5.

Chen Yang contributed research.

http://www.nytimes.com/2009/07/16/wo...gewanted=print

I apologize if i'm wrong, but isn't bribing the norm in China?

**xinhui** · 16 Jul 09, 20:59

Corruption Perceptions Index - Wikipedia, the free encyclopedia

PRC ranks 72 in world corruption index, ROC ranks 39, HK ranks 12 and Singapore ranks 4th.

Here is a good place to go.

http://www.transparency.org/publications/publications

**tinymarae** · 16 Jul 09, 22:37

China doesn't give a f*** about what Kevin Rudd thinks.

China dismissed Australian officials’ expressions of concern over the detentions of four employees of the mining giant Rio Tinto as “noise” on Thursday, in one of the government’s few public comments on the case.

Prime Minister Kevin Rudd and other Australian officials have repeatedly pressed Beijing to be fair and transparent in dealing with the four employees, one of whom is an Australian citizen. On Thursday, a Chinese Foreign Ministry spokesman, Qin Gang, called the comments “noise” and said, “This is an interference in China’s judicial sovereignty. It cannot change the facts and the investigation.”

http://www.nytimes.com/2009/07/17/wo...otinto.html?hp

Looks like China is going to make an example of Rio Tinto.

**xinhui** · 16 Jul 09, 23:22

Rio is THE player in the iron ore game, there is no getting around it.

China is moving toward the direction of wanting to be in the commodities futures market and as a manufacturer, the price jump of last few years (Copper, iron and of course oil-refinery, to name a few) really hit home hard. The way PRC government handled the Rio affair has been extremely poor and created a PR nightmare, but their goal is clear, they want to be the new broker and there is no question that they want to end the dual-track iron ore system is not working

People have noticed that most of the hundreds of billion dollars PRC spend in recent acquisitions are commodities related.

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