China holds Rio executive for allegedly stealing state secrets

Finance

China has detained Rio Tinto's head of iron ore operations in the country Stern Hu for allegedly stealing state secrets, the foreign ministry’s spokesman Qin Gang said today.

"Competent authorities have established the evidence before they took action against anyone," Qin said today in a regular press briefing in Beijing. Hu, an Australian national, and three Rio Tinto workers, all Chinese citizens, were arrested by the Shanghai state security authority, the official Xinhua news agency reported earlier today.

Rio Tinto last month scrapped a US$19.5 billion investment by Aluminum Corp of China, and is deadlocked in iron-ore talks with steelmakers. The detention of the Rio Tinto employees is part of a broader investigation into alleged kickbacks among traders and mills, the Australian Financial Review said.

"This is a warning for iron-ore buyers and sellers to be more vigilant in their market practices," said Helen Wang, a Shanghai-based analyst at DBS Vickers Hong Kong Ltd. "The detention of Rio Tinto executives indicates business negotiations should also be wary of policy and information risks."

Chinese steel mills and iron-ore producers are continuing the longest-running negotiations in the 40-year history of setting annual prices for the steelmaking raw material. China, the largest buyer of iron ore, rejected Rio Tinto's push for a 33% price cut, which was agreed to by rival users in South Korea and Japan, and is seeking a steeper discount to counter falling profit as steel demand drops.

There wasn’t any indication the allegations were business- related, Australia’s Foreign Affairs Minister Stephen Smith said yesterday, declining to comment on how relations with China would be affected. So-called consular access to Hu is required to be given by July 11, he said.

Rio Tinto was "surprised" by the authorities' action and is "not aware of any evidence that would support such an investigation," London-based spokesman Nick Cobban said yesterday. The group hasn’t been able to contact the workers, he said.

Rio Tinto said last month that some iron-ore supply contracts may revert to so-called spot pricing, or market rates for immediate delivery, from June 30 if there are no contracts agreed. Fixed- price iron ore contracts, which cover the fiscal year starting April 1, haven’t declined for six years.

Separately, the 21st Century Business Herald reported today that Shougang Corp's head of iron ore operations, Tan Yixin, was detained on July 7 for alleged business crimes as part of a crackdown on trading of the raw material in China, without citing anyone. Zhang Wenzhe, a Beijing-based Shougang spokesman, declined to confirm whether Tan was detained.

It isn't known whether Tan’s detention is related to the Rio Tinto detentions, the 21st Century report said. Hu's job is to sign long-term supply contracts with Chinese major steelmakers for Rio Tinto, it said. Hu visited Shougang in April and had communications with Shougang executives including Tan, 21st Century reported.

The 21st Century newspaper named the three other detained Rio Tinto officials as Liu Caikui, a manager, and employees Wang Yong and Ge Minqiang, cited unidentified officials.

Bloomberg, July 9