According to China Daily, the official newspaper in China, Rio Tinto has virtually bribed the entire management of the steel industry in the country.
More than a week ago, four employees of Rio Tinto were arrested on suspicion of ‘espionage, stealing state secrets and harming the nation’s economic interests and security.’ Stern Hu, an Australian national who is in charge of iron ore trade in China for Rio Tinto is one of the four detained.
More than ten people in different Chinese steel companies have also been detained for further investigation, including the executive assistant of China Shougang Group.
The state secret involved is said to be confidential documents that gave Rio Tinto the upper hand in its iron ore negotiation with China’s state-owned steel mills. More specifically, it includes detailed information of the industry's projected ore demand and production data.
In the recent negotiation on long-term fixed price ore contracts, Chinese steel mills demanded a 40% decrease in price, back to the levels of 2007. But Rio Tinto insisted on a cutback of 33% at most, a price already accepted by Japan. The big three iron ore companies in Australia threatened a stoppage of supply to the open market, which meant that China had no recourse if negotiations broke down.
This tough position by the miners is because they have been informed of the forecasts of Chinese steel mills by insiders who took bribes. In past years, although the largest buyer of iron ore in the world, China has suffered from price rises of over 90% since 2004.
Columnist Li Fuyong comments:
More details about how the employers of the state-owned steel companies took bribes were soon revealed. Netizens were furious to see that the people enjoying high pay from their own industry were ‘selling China to foreign companies!’
The article ‘从力拓间谍门看中国商业贿赂‘ (commercial bribery reflected in Rio Tinto's ‘Espionage-Gate’)
On the internet, the senior officials were called ‘Hanjian’, which means ‘rats amongst the Han Chinese’. It more usually refers to people who helped the Japanese invaders during the WW2.
hanyzj commented on 163.com:
And a netizen named Sunny-day complained:
Commercial or political?
The national security bureau has intervened to investigate the ‘espionage’ case. The computer of Stern Hu was confiscated and it was said that confidential information on scores of Chinese steel companies was found inside.
As China stepped up the campaign against commercial bribery there was reaction from overseas.
Australian prime minister, Kevin Rudd, warned China to handle the case carefully so as not to affect international public perceptions. Also the U.S. Commerce Secretary Gary Locke reacted with ‘great concern’ to the arrest of the four employees. Rio Tinto has asked its foreign staff to leave China or not to return to the country.
Last month a Chinese state-owned company called Chinalco just failed to buy a large stake of the Australian mining giant Rio Tinto. Most Chinese people thought the failure was the result of Australian political concern. Therefore an opinion has suggested that the detention this time could be China’s retaliation, but China has denied, saying it was an ‘individual case’.
Rather than the foreign employees, Chinese netizens are angrier at the rats among themselves. 暗香浮动 criticized that the corruption and bribery are the results of monopoly in the steel industry.
Woyaodese further points out that the centralization of power should be blamed as a hotbed that encourages corruption.
Therefore, the qualified companies, which constitute the majority of the negotiation team, all have an incentive to accept a high price. That might be the reason that, this year in order to stop the trend, it is the China Iron and Steel Association who took charge of the bargaining.
A question was raised. Bribery and commission are not unusual in Chinese business circles. Why would China be so adamant in investigating the case that it would even risk international disputes? An article suggested Rio Tinto has violated the hidden rules of business in China. Not only has the failure of China Aluminum Corporation to seize the stake of Rio Tinto seriously annoyed many senior officials, but its tough position in negotiations has also pushed the representatives to the corner.
The article said,
Let's look at what Rio Tinto has done recently.
First, it strikes a deal with small steel enterprises to circumvent the China Iron and Steel Association, which is responsible for collective bargaining for the steel giants in China.
Second, it sends a huge amount of iron ore to different ports in China to fake an apparent strong demand in order to pressure the Association.
But the ultimately fatal problem is that it has backed the Association into a corner! The Association has already implied that ‘we won't insist on a 40% decrease but you have to make some concession on your 33% ultimatum!’ It could be interpreted as, ‘Come on, we know you will be the winner but give us some discount so we can at least have something to report back to our bosses. Even 0.1% is enough, please!’ But Rio Tinto pretended to be deaf!
（Bob Guy also contributes to the post.)