Tue, Aug 11, 2009 - Page 8 News List

EDITORIAL: Rio Tinto scandal hurts PRC the most

In its efforts to portray itself as an investment haven for multinationals, the People’s Republic of China has shown itself to be far more accommodating to foreign companies than governments. Such has been its thirst for foreign investment as it modernizes that even companies headed by pro-independence Taiwanese have been treated with silk gloves.

Over the years, this strategy bore fruit for Beijing as foreign companies rushed to establish themselves despite growing criticism of China’s human rights record. This two-track approach — kind to businesses, intransigent with governments — has created a buffer between politics and business such that one does not threaten to undermine the other even during political crises. This helps explain, for example, why the corporate sector — even in Taiwan — showed itself so willing to resume operations in China after the Tiananmen Square Massacre in 1989.

The same applied to tensions over the US bombing of the Chinese embassy in Belgrade in 1999, the occasional spat over Japanese leaders visiting the Yasukuni shrine, or accusations of Chinese spying. Governments spar rhetorically, but no one does anything to prevent economic exchanges.

One recent case, however, is threatening to undermine China’s image as an investment hub: the Rio Tinto spy scandal. Beijing’s National Secrets Protection Bureau claims that the Australian firm has spied on Chinese steel mills for six years, which it claims resulted in the mills overpaying US$102 billion for iron ore. Four Rio employees in Shanghai, including Stern Hu (胡士泰), an Australian, were detained last month on suspicion of stealing state secrets.

Some analysts have said that China may be using the accusations to put itself in a position of strength in iron ore price talks with Rio Tinto. Some also say the accusations lack transparency, are vague and hardly credible. For example, China’s claim that it overpaid US$102 billion for iron ore is odd given that Rio Tinto’s total iron ore revenue over the past six years was US$42.6 billion.

Depending on how the case goes and how the alleged spies are treated in a country that has a history of dealing swiftly with such individuals, the potential exists for the conflict to become political — for politics to intrude upon economics. In recent months, relations between Australia and China have become tense, largely the result of allegations of Chinese spying on Australian government officials and, in the past two weeks, Beijing’s campaign against the Melbourne International Film Festival over a film about the life of Uighur leader Rebiya Kadeer.

Since Deng Xiaoping’s (鄧小平) famous southern tour in 1992, China has dramatically improved its image as a place where foreign businesses can invest. Changes, including legislative reforms, have alleviated apprehensions among multinationals that in times of crisis they could be the targets of retribution or that their assets could be nationalized.

But the accusations of spying against Rio Tinto involve a China that is far more assertive than it was a mere decade ago, which means that its flexibility toward economic partners may be something of the past. In times of aggressive nationalism, that flexibility is bound to disappear altogether.

If it mishandles the Rio Tinto case, China could very well face its first crisis of foreign investor confidence.

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