hu has been charged, page-6

Rio arrests raise fears among foreign groups in China.

Leo Lewis | August 14, 2009
Article from: The Times

THE arrest of the four Rio Tinto executives in China on allegations of bribery and industrial espionage has heightened fears among foreign companies operating in the country.

Lawyers and risk consultants operating in China have reported a surge in inquiries from clients worried that something similar might happen to their staff. One Beijing lawyer said that the incident had forced a number of Western companies to consider just how close they operated to an invisible line.

The Rio executives were arrested five weeks ago and Chinese state media initially said the men would be charged with stealing state secrets.

The four executives, who were leading Rio's negotiation of multibillion-dollar iron ore contracts with China, were accused of bribing officials at state-owned steel mills to gain market information, which would allegedly put China at a disadvantage in the iron-ore pricing negotiations.

The arrest warrant for the four men was downgraded two days ago to bribery and stealing commercial secrets in a move that was seen as an attempt by the Chinese to defuse a diplomatic row.

Even though the background to the Rio incident is highly specific, Western companies operating in China have been spooked by the accusations.

Doug Clark, the managing partner at Lovells, the law firm, in Shanghai, said that the business of collecting commercial intelligence was an area where foreign companies risked crossing an invisible line - particularly in politically highly sensitive industries such as resources.

Steve Vickers, president and chief executive of FTI International Risk, said that, in emerging economies, companies had to be alive to dangers outside their normal experience.

In the wake of the Rio incident, he had been contacted by various businesses trying to evaluate their vulnerability. "Most companies are most unlikely to find themselves in such a sensitive position (as Rio Tinto), but all should be wary to avoid falling into the trap of, or being perceived as, paying for information in an inappropriate fashion," he said.

China's accusation that the Rio executives stole commercial secrets has also ruffled feathers in Japan, which views China as the biggest threat to the security of Japanese industrial intelligence.

A law has been formulated within the past few months designed to plug what is seen as a constant illegal flow of commercial secrets from Japanese companies to China. The law was prompted by the theft of data from Denso, a major manufacturing partner of Toyota.

Meanwhile, China has demanded more influence in the global iron ore trade - a market where it is the world's biggest consumer and - remains locked in bitter price negotiations.
The calls for greater sway have raised fears that Beijing is pushing into what would normally be purely commercial negotiations.

Li Yizhong, China's Minister of Industry, said that there should be greater domestic backing for China Iron and Steel Association (CISA).

The association is thought to be preparing a set of guidelines on how future iron ore imports should be priced uniformly throughout China. Shan Shanghua, the CISA secretary-general, discussed the creation of a "base price for a national unified price for importing iron ore".

Mr Li's remarks come as international spot prices for iron ore have risen above $US100 per tonne - a price that many Chinese mills have grudgingly had to accept until a price is settled with the likes of Rio Tinto, BHP Billiton and Brazil's Vale.