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Australian giant mining Rio Tinto’ Stern Hu Spy row: an end to Australia-China ties

By Amarendra Bhushan for CEOWORLD Magazine Updated:July 13, 2009

The arrest by the Shanghai State Security Bureau of Stern Hu, the head of iron-ore operations in China for the Australian mining giant Rio Tinto, has shocked the business world and thrown the government of Prime Minister Kevin Rudd into a diplomatic crisis.

The arrests have cast a shadow over Australia-China ties, which have been key to Australia avoiding a recession in 2009.

Anglo-Australian miner Rio was in intense price negotiations with China when Australian Stern Hu and the three others were detained in Shanghai, accused of stealing state secrets and bribing Chinese steelmakers for information.

International security analyst Clive Williams said every country, not only Australia, now faced difficulties dealing with China, because of the country’s looming economic problems and leadership sensitivities about them.

“It’s a difficult time to be dealing with China, because in a state-owned economy there is a certain amount of blow-back from economic stagnancy to the leadership,” Williams, from the Strategic and Defence Studies Centre.

Rudd’s image as a China expert has been dented by recent political wrangling over a failed $19.5 billion investment by Chinese metals firm Chinalco in Anglo-Australian miner Rio Tinto, and now the arrest of Chinese-Australian Stern Hu, Rio’s top iron ore salesman in China.

The Sydney Morning Herald newspaper said the investigations appeared to be part of a realignment of how China managed its economy in the wake of the global financial crisis, with spy and security agencies promoted to top strategy-making bodies.

Last week, Chinese authorities detained Anglo-Australian miner Rio Tinto’s top iron ore salesman in China, Australian Stern Hu, and three of his Chinese subordinates, on suspicion of stealing state secrets.

Hu Jintao, the Chinese president, reportedly called for the investigation personally which led to the arrest of 4 managers from the Australian mining giant Rio Tinto, with accusations of industrial espionage, reported the Sydney Morning Herald. The paper quoted government sources in Beijing.

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Tagged with: australia, business-economics-and-finance, China, federal government, foreign-affairs, government-and-politics, mining, security-intelligence, wa

steveewings

I am a very small player in international trade but am outraged by the Stern Hu incident. As far as I'm concerned I will not support Chinese industry while this line is being pursued. This is of course unfortunate for the average Chinese manufacturer or industry player and is so archaic in principle that I am unable to accept. If China wants to play in the international commercial arena it must accept basic human rights and move away from the suppression of people. If this is not the case then they will need to re-internalise and simply return to their previous insulated domain. These are not easy financial times and given China has tasted the benefit of a freed-up economy many are astounded that there is a desire to take this petty approach

steveewings

I am a very small player in international trade but am outraged by the Stern Hu incident. As far as I'm concerned I will not support Chinese industry while this line is being pursued. This is of course unfortunate for the average Chinese manufacturer or industry player and is so archaic in principle that I am unable to accept. If China wants to play in the international commercial arena it must accept basic human rights and move away from the suppression of people. If this is not the case then they will need to re-internalise and simply return to their previous insulated domain. These are not easy financial times and given China has tasted the benefit of a freed-up economy many are astounded that there is a desire to take this petty approach

Nikolas

It looks like to the CEOWORLD Magazine and some, even when China is prosecuting its own corruption cases, the western firms' employees are untouchable. If this were 100 years ago, I bet troops would be sent to loot Beijing for detaining these people.

martha

I agree to Nikolas,

CEOWORLD Magazine is so ridiculous in almost anything related to china.What they are doing is nothing but trying to find a excuse to blame the chinese government.Ironically,you can blame the government for many things without offending any reader's intelligence but you always choose the wrong excuse and make yourself souds like a ten years old american boy.

I can understand that westerners are unhappy about the way that chinese gorverment handled its suspects and trust me no one is.Even chinese people want it be more transparent and a healthier legal system and such.But this is not the case here.

If you are thinking that it's all about saving face and these employees are innocent people then i can safely say that you have abosutely no idea of how people do business in china.

simone

I Agree Martha nad Nikolas,

99% of chinese wouldn't believe that there's no curruption involved.some people are angry at goverment for its inaction to fight the coruption involved.when the goverment do take action,it usullay because it's too big to ignore it anymore.Most likely that these people involved are guity and i hope they get what they deserve instead of getting away from it easily just because they are foreigners and i am pretty sure that chinese goverment have enough evidence to support their action since usually they try very hard to avoid troulbes like this.

John hau

It is perfect time for China to get in and grab all those resource contracts. Since the world economy is slowly down on emerged market. China can buy those resource contract and maintaining the production since it need large quantity anyway, moving away from miners like Rio and BHP without them playing pricing games with China like these days.

Just look at iron ore spot prices these days, it is absurd and everyone knows the miners and playing games for higher price contract for the steel makers.

jamesceo

I would say that the arrest of Stern Hu has cast more than a shadow over China-Australia ties and that the cultural gap (at the top political level) will make it hard to see any solution or compromise that satisfies both country's interests.

Whatever the facts are, Australia will consider this issue as a business issue whereas China will insist that it is an 'espionage' issue involving state secrets.

A solution may have to come from an interested but independent 3rd party such as WTO of which both sides are members; WTO does have the power to challenge its Members' local laws and the local interpretation of their laws. In effect, WTO does have a say in the democratic and sovereign decision making of it's member countries; business data, although pertinent to a state owned company, should not be classified as state secrets in order to gain some trade advantage!

In the Stern Hu case, the WTO does have a mandate to push for a negotiated solution. China depends on trade for its own continued prosperity and clearly this case can have a damaging impact on trade with the two WTO member countries involved.

business freedom

If a Chinese person is detained in a western country, then it is the fault of Chinese government for sending in spys. If a westerner is detained in China then the allegations are automatically invalid because it is secret dealings of the Chinese government. Either way the west is never at fault and China is always at fault.

Roger

Countries that are poor are that way for a reason. That reason used to have to do with the rapaciousness of outsiders. Now it has to do with the stupidity of insiders.

Name

Cops and spooks running businesses? Those concerned about Western commerce being swiftly overrun by the great Panda of Chinese fascism, can breath a sigh of relief. Just when it started to seem as if they had permanently improved management of that slippery balance of state vs. free market economics, classical Chinese hubris steps forth and rears its head.

A displaced peasant's hungry stomach and a steel plant's blast furnace alike, cannot be fed by yet another giant empty face-sandwich, the typical rhetorical product of their overweening pride. Ah well, they've been bent out of shape since the 20th anniversary of the Tian-"oops-we-cannot-allow-ANYONE-to-mention-it" incident. Perhaps further lunacies such as this, are in store for the near future.