Mon, Jul 13, 2009 - Page 11 News List

Rio arrest chills business

AFP , MELBOURNE, AUSTRALIA

Australian Trade Minister Simon Crean, left, and Australian Minister for Innovation, Industry Science and Research Kim Carr speak to the media in Shanghai, China, on Saturday. Crean conveyed “concern” to Chinese government officials over Rio Tinto Group executive Stern Hu, who has been detained for allegedly stealing state secrets.

PHOTO: BLOOMBERG

China’s arrest of a top Rio Tinto executive on suspicion of spying is likely to cool the international business community’s love affair with the world’s most populous nation, analysts said.

Australian Stern Hu’s (胡士泰) detention in the midst of tough negotiations with Beijing showed China was willing to flex its political muscle and play “hardball” in tough times, experts from across the Asia-Pacific region said.

While the arrest would not stop foreign firms from lining up for access to a market still growing rapidly amid a global downturn, it was a warning that political power and business were inextricably linked in China, they said.

John Lee, a China expert at Australia’s Center for Independent Studies, said it was no coincidence Hu’s arrest came after Rio Tinto snubbed state-owned Aluminum Corp of China’s (Chinalco, 中國鋁業) US$19.5 billion bid to lift its stake in the Anglo-Australian miner.

Lee said China’s leaders, unhappy at the Chinalco deal collapse and Rio’s tough stance in iron ore negotiations, appeared to be sending a message to the business world that they would not be pushed around.

“The timing is uncanny, it’s hard to say whether there’s any definite connection until we see this evidence, but I don’t think the timing is coincidental,” he said. “The Chinese will play hardball much more. I think negotiations will be less friendly.”

Hong Kong Baptist University associate finance professor Billy Mak (麥萃才) said the case highlighted growing tension between China and overseas natural resources companies.

With Beijing increasingly looking to own international resource companies, rather than simply buy raw materials from them, Mak said Hu’s arrest would make international firms more cautious in their dealings with China.

“Although we cannot say whether it is China’s revenge or retaliation, the incident will definitely dampen the commercial relationship between Beijing and the overseas companies,” he said.

The arrest has gained international prominence because it is the first time an Australian executive has been arrested in China, but Lee said the country’s expansive state security laws have often been used against Asian executives.

National Taiwan University economics professor Kenneth Lin (林向愷) cited a case in which the head of a Taiwan-based department store’s Beijing operation was temporarily barred from leaving China over a dispute with local partners.

Arch Shih (施博元), an analyst at Taiwan International Securities (金鼎證券), said the dangers of doing business in China were clear.

“Investors had better bear possible social and political risks in mind and prepare themselves for the worst. It is a principle to any investor in any place,” Shih said.

Beijing-based research consultancy Dragonomics said China’s espionage laws were more wide-ranging than in most countries, creating a potential minefield for foreign firms.

“It certainly raises an issue for foreign investors, which is the definition of state secrets in China includes a lot of commercial information in state enterprises,” Dragonomics managing director Arthur Kroeber said. “If you take information out of a state enterprise and give it to any kind of foreign party, you can under Chinese law be accused of violating the state secrets law.”

Australian Foreign Minister Stephen Smith expressed bemusement last week at China’s state secrecy laws, saying they appeared to encompass behavior regarded as normal commercial activity in other countries.

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