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

Thanks.

I think 'Kafkaesque' is the appropriate term. There is a certain schadenfreud in seeing big business finally copping it - suddenly they have found out what all those annoying human rights campaigners are actually on about.

Originally Posted by xinhui

BF,


Here is an article for you.

Beijing’s peculiar definition of state secrets

By Phelim Kine

Published: July 23 2009 21:36 | Last updated: July 23 2009 21:36

If foreign investors thought they need not concern themselves with the Chinese government’s spotty record on basic rights, the Rio Tinto case might well be their wake-up call. Since July 5 2009, four of the Shanghai-based staff of the Anglo-Australian mining giant have been in jail, no doubt wondering how they will defend themselves against China’s curiously slippery state secrets law.

The Rio Tinto employees, who include an Australian citizen, Stern Hu, have been accused of obtaining confidential documents during negotiations for the supply of iron ore to Chinese state-owned firms.

While the Chinese government has carried out a great deal of legal reform in the past decade, particularly as it prepared to join the World Trade Organisation in December 2001, less progress has been made towards a stable and predictable legal system. The Communist party is still uncomfortable with the idea that its judgment about the best interests of the state must bend to a real rule of law. The crime of disclosing state secrets is a near-perfect illustration of this attitude.

The Rio Tinto case gives China’s foreign investment community a crash course on the Kafkaesque nature of the Law on Guarding State Secrets. This law can classify as state secrets any information under ex*tremely broad criteria, including information that is related to “economic and social development”, as well as a non-specific “other matters” category.

National and local officials are allowed to decide after material has been published whether it is a state secret, and those determinations cannot be legally challenged. As recently as 2005, information related to domestic natural disasters was also on the state secrets list.

Even information already publicly circulated can be problematic, as the case of Shi Tao, a journalist, illustrates. He was sentenced to 10 years’ imprisonment in 2005 for posting on overseas websites the official restrictions the government had circulated to Chinese media outlets on coverage of the 15th anniversary of the June 1989 massacre.

The Criminal Procedure Law and Criminal Law aid and abet the Law on Guarding State Secrets. During the investigatory stage of state secrets proceedings – which routinely lasts months – the Criminal Procedure Law bars suspects access to lawyers pending investigators’ approval. The Criminal Procedure Law also classifies all evidence in state secrets trials as confidential and requires judges to hold trials behind closed doors. Under China’s Criminal Law, state secret convictions can range from a minimum prison term of five years to the death penalty.

Last month, the National People’s Con*gress, China’s parliament, re*leased a draft revision of the Law on Guarding State Secrets for public feedback. However, the revisions focus mainly on securing confidential information stored on computers or transmitted via the internet and leaves intact the law’s broad criteria for classifying state secrets.

China’s international investors have resisted pushing for progress on the rule of law and transparency beyond the immediate boundaries of their commercial interests. The Rio Tinto case, however, shows that those boundaries provide no immunity when the Chinese government perceives its interests to be threatened.

Foreign investors, representative governments and international business federations such as the Chambers of Commerce of both the US and the European Union should urge China to narrow its definition of state secrets and demand an end to the routine violation of international due process standards for all suspects in state secrets cases. A unified challenge by private industry, foreign governments and international business federations would dovetail with the efforts of Chinese lawyers, academics and human rights defenders to end the abuses built into China’s state secrets laws.

Just last month, concerted and diverse foreign opposition to the government’s move to require computer manufacturers to pre-install the controversial Green Dam/Youth Escort internet filter prompted Beijing to delay the measure. There is room for guarded optimism that a similar campaign to demand change in China’s state secrets laws might just bear fruit.

The writer is an Asia researcher for Human Rights Watch

Copyright The Financial Times Limited 2009

FT.com / Comment / Opinion - Beijing?s peculiar definition of state secrets

Another way to look at it and in no way try to justify PRC's mucky legal system is that Rio was biting off more than you can chew. After all, China has been drawing about 57Billion FDI a year before the Rio incident.

I didn't know this. The BHP & Rio proposal to merge their iron ore operations in W Australia has to be cleared by Europe and China. And Beijing has anti-monopoly law. This is a significant point.

Battle shows China's will to block BHP-Rio

31 July BEIJING (Reuters) - The detention this month of four Rio Tinto employees in China, in the midst of bruising iron ore prices negotiations, could be just a sign of things to come as BHP Billiton and Rio seek regulatory clearance for their iron ore joint venture, Chinese lawyers and officials said.

BHP and Rio proposed in June to merge their iron ore operations in Western Australia's Pilbara region. That joint venture needs to be cleared by regulators in Europe and in China, where the case offers Beijing an opportunity to wield its new anti-monopoly law.

"If the government is prepared to use security services in support of its own companies, then we cannot preclude that they will use the laws on their books to block the joint venture," said Michael Komesaroff, a consultant on Chinese industry at Urandaline Investments in Australia, referring to the detention of four Rio employees. ....

Originally Posted by Merlin

I didn't know this. The BHP & Rio proposal to merge their iron ore operations in W Australia has to be cleared by Europe and China. And Beijing has anti-monopoly law. This is a significant point.

Battle shows China's will to block BHP-Rio

Merlin,

I don't think the proposed merger 'has to' be approved by China. As the article pointed out, China has limited practical means to enforce any decision. It can refuse to buy the ore, I suppose, but that leaves it with limited alternatives & gives other suppliers an opportunity to jack up their prices. Not all hot air, but quite a bit.

Europe is an entirely different matter. I'm pretty sure Both Rio & BHP are majority European owned (Rio definately is). Pretty sure they are both listed on the London stock exchange. European regulators have far more scope to make life difficult if they choose. My bet is that, given the limited nature of the merger & the peculiarities of the physical area (expensive & often remote transportation & processing infrastructure) my bet is that this will get a pass.

Originally Posted by Bigfella

... I don't think the proposed merger 'has to' be approved by China. ....

I have no idea whether you or Reuters are correct.

Here is the number; Australia exports 53 billion dollars worth iron ore last year that is 1% of its GNP and half of those ore went to China.

I am not sure they can bring this to WTO regarding the merger, but a third party mediator such as WTO would restore balance to the force. However, knowing how China operates, it is unlikely they would choice this option.


As a side note, all the talks about Iran....is so 19th century

Originally Posted by Merlin

I have no idea whether you or Reuters are correct.

Merlin, I've picked out the relevant bits. The real issue is what China can realistically do if it decides the merger doesn't pass its laws. It looks like even Chinese observers doubt the ability of regulators to make a practical difference at this point.

Clarifying rules released in August 2008 said that China had jurisdiction if a proposed overseas merger involved an annual trading volume in China of 400 million yuan or more.

Sales in China by the two mining giants are more than enough to trigger the clause, but neither company has substantial investment in China, reducing China's leverage.

And China can hardly forbid the import of the reliable, high quality ore that its best steel mills rely on. Despite brave talk of domestic mines and diversifying sources, the quality is poorer and volumes insufficient.

"If they don't accept China's authority, for example, that could hurt their sales in China. They could be hit with a proportional fine on sales," Mei said, adding that a halt in imports would be "the most extreme case."

London-based spokesmen for BHP and Rio said that the companies would go through the regulatory processes, including in China, after the details of the joint venture are ironed out.....

"From a legal point of view, there are grounds to use the law, but it seems that China's law enforcement bodies haven't yet prepared any sort of measures to use against monopolistic practices beyond its borders.".....

"Even though a ban by China's anti-monopoly bodies will not be a deterrent now, that doesn't mean it will never be a deterrent," Wang wrote in China Weekly magazine this week.

Micro$oft has no major R&D centers in Euro land, it does not manufacture anything there. Computer users in Euro land will not say no to Micro$oft's product and yet it has agreed to pay anti-trust fine in the billions of dollars. Intel is also in the same situation.

BF, in your earlier post, you correctly pointed out Chinese government does not follow the rule of law, and yet, you seems to suggest that law [anti-trust] should be discarded if there is nothing the Chinese government can do. Don't forget the Koreans and Japanese, they are also in the anti-trust alliance against the merger.




Do you serious believe Kevin would upset the entire liberal trading system that this helped to bring down the Soviet empire?

Originally Posted by xinhui

Micro$oft has no major R&D centers in Euro land, it does not manufacture anything there. Computer users in Euro land will not say no to Micro$oft's product and yet it has agreed to pay anti-trust fine in the billions of dollars. Intel is also in the same situation.

BF, in your earlier post, you correctly pointed out Chinese government does not follow the rule of law, and yet, you seems to suggest that law [anti-trust] should be discarded if there is nothing the Chinese government can do. Don't forget the Koreans and Japanese, they are also in the anti-trust alliance against the merger.




Do you serious believe Kevin would upset the entire liberal trading system that this helped to bring down the Soviet empire?

First, this isn't really up to Kevin. He doesn't run either company & generally speaking we do try to adhere to the rule of law.

Secondly, I think the suggestion that this will 'upset the entire liberal trading system' is a bit OTT. This is especially so in a situation that started with a tantrum brought on in part by Australia's refusal to let a foreign dictatorship buy up vital commodities.

Third, I was in no way suggesting that the rule of law be discarded. I was merely pointing out that laws ultimately have to function in real world settings. European judges can charge people with crimes against humanity, but that doesn't mean they will ever see jail time. Microsoft wants to sell its products in the EU & clearly believed the EU would hinder that. I don't think the China situation is quite the same.

China can pass whatever laws it sees fit & interpret them as it sees fit. What ultimately matters is the extent to which it can enforce them or chooses to do so. My bet is that the realities of this situation will trump any momentarily convenient dalliance with rule of law & the merger will stand.

As I have said before, this is really a simplification of infrastructure in a place where it is mostly privately built & VERY expensive. It is the rough equivalent of two competitors agreeing to share shipping costs rather than separately hiring individual ships (it is a bit more than that, but you get the idea). BHP seriously attempted to purchase Rio outright a while ago. I'm betting they wouldn't have considered that if their legal people didn't think it would pass the regulators. I think this lesser merger will make it through.

First.

It is Kevin's problem and you know that he was involved with the entire affair (from Hu's arrest to the merger talk) from day one. Why would he calls for release of the Hu from day one? we are discussing 1% of the GNP here. A company that caused an international uproar with the EU, China, Japan, Korea and now the US is very much Kevin's deal.

Australian Prime Minister Kevin Rudd said July 15 that the world is watching how the case is handled and U.S. Commerce Secretary Gary Locke urged “greater transparency”

Secondly,

it is the concept of "anti-trust", is being discussed -- it has nothing to do with "let a foreign dictatorship buy up vital commodities" Iron ore like any other commodities is also traded in "spot markets" that means anyone can buy or sell, not just steel producers.

Third.

And Rios wants to sell their ore to China, the largest steel producer in the world, I failed to see how China has no saying in this matter. Brazilian is watching....

Fourth,

I agree with you on this one, I am not a lawyer, if EU agrees to allow the merge to talk place, then the drama continues... WTO will be next and maybe it will serve as the"kick" China needed start using some of the international mechanism to resolve trade disagreements.


As a side note, Iron Ore is selling at 100 dollars per ton at the spot market this week.




The following two articles display the reactions already in place..

UPDATE 2-China iron ore output soars, steel at record | Markets | Markets News | Reuters
UPDATE 2-China iron ore output soars, steel at record
Fri Jul 17, 2009 3:55am EDT

* Iron ore output leapt 27 pct in June from May


By Alfred Cang and Tom Miles

SHANGHAI/BEIJING, July 17 (Reuters) - China's monthly iron ore output leapt by a quarter to the second highest ever in June as demand for steel strengthened and prices rose, while steel production hit an all-time peak, official data showed on Friday.

The 27 percent jump in iron ore output, to 83.3 million tonnes, will reassure local steel mills that are facing uncertainty over imports of iron ore because of the furore over allegations of spying levelled at Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz) employees involved in China's annual price negotiations.

China was expected to settle iron ore prices with Rio and its Anglo-Australian rival BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz) at the end of last month, but the two sides failed to strike a deal before the talks became subsumed in the spying row involving Rio.

With a revival in the international market, domestic production has rebounded.

"The trend is expected, as imported iron ore prices have been higher than domestically produced, encouraging local miners to resume production," said analyst Hu Kai at industry consultancy Umetal Research Institute. "Production will keep rising in July, as more mines are reopening."

A slump in prices early this year forced China's relatively high-cost iron ore mines to cede domestic market share to importers, who have shipped unprecedented amounts to China for the last three months.

Some analysts had estimated China closed nearly 20 percent of its ore mines this year.

But spot iron ore prices delivered in China have steadily risen to above $80 a tonne and some Indian ores are offered at around $90 a tonne, making them more expensive than Chinese spot material for the first time nearly in a year.

China, the world's largest iron ore buyer, consumes more than half of the world's traded ore. Its buying spread helped iron ore prices rebound strongly this year, reducing their negotiation leverage with global miners.

The National Bureau of Statistics, which published the figures, revised last June's iron ore production up, leaving the latest month showing a 1.6 percent fall in volumes.

China's crude steel output in June rose 6 percent on year to 49.42 million tonnes, and coal output jumped 15.9 percent on year to 279.09 million tonnes, both record high levels, according to the data from the National Bureau of Statistics.

June's steel production is equivalent to an annual output of more than 600 million tonnes, 20 percent higher than the country's 2008 production and way above previous government target of 460 million tonnes for 2009.

"The production means the utilisation rate of Chinese steel sector has returned to more than 90 percent, similar to the level in 2007, due to strong order booking," said Hong Kong-based analyst Helen Lau with OSK Securities.

Lau estimated that China's total annual crude steel capacity had reached 650 million tonnes.

China's June raw coal output rose 12.3 percent from a month earlier, the official data showed.

"Small coal mines in Shanxi were returning to production, in addition to fast growth in coal production in Inner Mongolia and Shaanxi," said Zhan Lingyan, an analyst at Shenyin & Wanguo Securities.

Inner Mongolia and Shaanxi were China's No.2 and No.3 coal producing region by output in 2008, after Shanxi Province.

But the double-digit growth in coal output is unlikely to sustain, as Shanxi's eligible small mines have nearly all been restarted, Zhan said.

"Coal mines in Inner Mongolia may not have as strong incentive to produce after the regional government introduced a coal price fund in July," she said.

The coal price fund requires coal miners to pay into it on basis of their output.

China's coal market is likely to be in balance, or even gain a small surplus in the summer, analysts said. (Reporting by Rujun Shen, Alfred Cang and Jacqueline Wong; Editing by Clarence Fernandez)














China diversifies spot iron-ore buying away from Australia
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By: Keith Campbell
31st July 2009
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The chartering of bulk carriers for deli- very from Brazil to China of iron-ore bought on the spot market hit a record level this month.

The number of ships involved is 31.

This is because the Chinese are substitu- ting Brazilian iron-ore for Australian, as a result of Australia’s suspension of spot sales to China. The decline in freight costs also makes sourcing spot iron-ore from Brazil more attractive.

China takes more than 50% of globally traded iron-ore and its rising demand has driven the spot price to its highest levels in eight months. Indian iron-ore-miners are also benefiting from this strong Chinese demand. Ores from India with an iron content of 63% to 63,5%, for delivery in August, were quoted at prices of $91/t to $93/t last week, up from $87/t to $89/t a fortnight ago.

Spot prices for benchmark 62% iron content ores from all international sources delivered to China, according to the Steel Index, reached $84,4/t early last week – an increase of nearly $3/t in a week – while the Metal Bulletin reported a price for this quality ore of $85,8/t for the same date. By the end of last week, the spot price was close to $100/t. Indeed, spot prices have risen by more than 60% in three months.

Market watchers believe that the spot prices will remain above contract prices for this year, but spot price increases could be constrained by the possibility of high- cost Chinese mines being reopened and by short-term excessive Chinese buying of the metal, leading to pauses in buying later in the year.

Brazil has been China’s number two supplier of the metal, after Australia. But during the first three weeks of this month, there were only 12 bookings for ships to carry Australian iron-ore to China, compared with a monthly average of 40 during the second quarter, and in sharp contrast to the record figure of 55 in March.

All this is the direct result of the dispute between Australia and China over the latter’s detention of four China-based employees of Anglo-Australian mining group Rio Tinto on July 5. One of the detained men, the manager of Rio’s iron-ore sales operation in China, Stern Hu, is an Australian citizen, while the other three are Chinese citizens. The Chinese authorities accuse the four men of stealing State secrets, obtaining them by bribery and other criminal methods.

Rio Tinto has stated that the allegations are “wholly without foundation”. However, on July 22, Chinese vice Foreign Minister He Yafei asserted: “We have sufficient evidence showing that the individuals involved obtained China’s State secrets using illegal means.”

Chinese law allows suspects to be held and interrogated for some time without being charged and without access to legal representation (although China has allowed Australian consular officials to visit Hu). China is not a democracy and does not have an independent judiciary, and Australian Foreign Minister Stephen Smith pointed out: “The Chinese have a much broader or wider view of what Australia might describe as State security, State secret, or national security matters.” Australia is pushing for the case to be dealt with expeditiously.

China is Australia’s second-biggest trading partner, and trade between the two was worth nearly $60-billion last year (up 36,1% from 2007), of which Australian iron-ore exports accounted for some $14-billion. China is Australia’s number one source of imports and its number two export market – Australian exports to China reached $37,42- billion last year, an increase of 44,8% over 2007. For China, Australia is its number seven source of imports and number ten export market, ranking the Antipodean country as the Asian giant’s eighth most important trading partner.

Little wonder, then, that Australian Trade Minister Simon Crean has commented, regarding the Rio Tinto affair, that with regard to the “impact on the economic relationship between our two countries, I don’t believe – particularly if the case is handled properly – it will have any impact on those relations”.
Edited by: Martin Zhuwakinyu

China diversifies spot iron-ore buying away from Australia