Article Tools Sponsored By By DAVID BARBOZA Published: July 13, 2009
SHANGHAI — The Chinese authorities have detained or questioned at least seven Chinese steel industry executives in a broadening corruption investigation connected to the detentions last week of four employees of the mining giant Rio Tinto, state-controlled news media reported Monday. Skip to next paragraph Related China’s Detentions of Executives Rattle Investors (July 13, 2009) Drawing Critics, China Seeks to Dominate in Renewable Energy (July 14, 2009)
The investigation, which began with accusations that the four Rio Tinto workers had conspired to steal state secrets, has rapidly widened, according to accounts on government Web sites and in Chinese news media. It now includes accusations of widespread bribery in business dealings, as well as allegations that the four workers paid for detailed government trade and manufacturing data to give Rio Tinto executives an edge in iron ore negotiations with Chinese state-controlled steelmakers.
The reports said that senior managers at five steel factories were giving the authorities information. Those being questioned include shippers, traders and steel-mill managers. A week ago, an executive at Shougang Steel in Beijing, one of the country’s biggest steelmakers, was detained.
“The whole industry is in a state of shock at the moment,” said Paul Bartholomew, an analyst based in Shanghai who writes for Steel Business Briefing. “There’s a sense of fear. ‘Don’t talk to us,’ or ‘Who’s going to get tapped on the shoulder next?’ ”
Rio Tinto officials declined comment on Monday. A spokesman for the China Steel and Iron Association, which represents a large number of Chinese steel mills, was unavailable for comment.
Experts on China’s large steel and iron ore industry say corrupt practices have gone on for years, including iron ore deals off the books and the exchange of confidential market data that Beijing now considers state secrets.
Analysts and industry officials, many of whom asked not to be identified Monday because they feared upsetting Beijing, said the steel industry was rife with rumors and worries that there could be a wave of arrests and detentions in the coming weeks, just as the industry was beginning to recover from a sharp slowdown.
“There’s a large gray area out there,” one industry official, who asked not to be named, said in a telephone interview on Monday. “We entertain officials all the time. Is that considered a bribe?”
People working for American companies and most European companies are barred by anticorruption statutes from entertaining government officials or buying them gifts to influence their decision-making. Initially, Australian officials suggested that the arrests of the employees of Rio Tinto, a British-Australian company, were in retaliation for a pair of soured business deals in China. Last month, Rio Tinto scuttled a planned $19.5 billion deal with a Chinese company, Chinalco.
Then focus shifted to Rio Tinto’s part in negotiations between iron ore suppliers and Chinese steel mills over ore prices. The talks failed to yield a long-term contract, and that could force the mills to pay higher prices this year.
China is the world’s largest producer of steel; Rio Tinto is one of its biggest suppliers of a main ingredient, iron ore.
Beijing officials deny that politics is involved, and they say the case will not harm China’s relations with Australia.
One of the four Rio Tinto employees in custody in Shanghai is Stern Hu, an Australian citizen who was in charge of the company’s iron ore trade. Mr. Hu has not been formally charged or allowed to see a lawyer or his family.
Australian officials are pressing Beijing for more details on the case and asking that it be expedited. Beijing has officially said very little about the case, which is before the Ministry of State Security and therefore confidential. But facing growing concerns that the spying accusations might have been retaliatory, the government has been allowing the state-controlled media to reveal more and more details.
On Monday, an article in The Beijing Morning Post, a state-controlled newspaper, reported that senior managers from five steel companies, including an individual involved in shipping, were being questioned about illegal activities.
An editor at one of the newspapers that has published details of the case said by telephone on Monday that he could not talk about where he got the information because the government says it is a state secret.
RIO Price at posting:
$49.10 Sentiment: None Disclosure: Not Held
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