Rio Tinto Group

Hung out to dry

PUBLISHED : Wednesday, 07 April, 2010, 12:00am
UPDATED : Wednesday, 07 April, 2010, 12:00am

Judgment has been reached in the Rio Tinto case, with all four defendants predictably found guilty on charges of bribery and theft of commercial secrets. However, the impact on business in China is likely to be considerable - and not for the most often-cited reasons.

Of course, Beijing did not behave well, violating a consular agreement by barring Australian observers from part of the trial on the grounds that commercial secrets were involved. But one does not expect rule of law on the mainland.

It is Rio Tinto's conduct that is disconcerting. The company appeared too eager to distance itself from its four executives, announcing their dismissal as soon as the guilty verdict came in.

Rio declined to comment on the theft-of-commercial-secrets charge, saying only that, since that portion of the trial was closed, it did not have an opportunity to consider the evidence.

It is important to remember that the two charges - bribery and theft of commercial secrets - were separate and unrelated. Yet, if it were not for the commercial-secrets charge, Stern Hu, formerly Rio's general manager in China and an Australian citizen, would have probably received a five-year sentence, rather than 10 years.

And, in some ways, the commercial-secrets charge was more serious, having caused the country to suffer economic losses.

The official Xinhua news agency reported that the four men - Hu, Wang Yong, Ge Minqiang and Liu Caikui - had, from 2003 to last year 'used improper means to acquire commercial secrets from Chinese steel companies' and the information was used to 'jack up the price that China paid for its iron ore imports'. Last year alone, it said, Chinese steelmakers paid an extra 1 billion yuan (HK$1.14 billion) for iron ore imports.

The Age newspaper in Melbourne reported that Judge Liu Xin said the stolen secrets included information taken from two conferences several years ago hosted by the China Iron and Steel Association, as well as the production plans of the state-owned Shougang steel mill.

The court said information was generally gathered by Hu and passed on to Rio Tinto headquarters. Liu said Tan Yixin, head of iron ore buying at Shougang, met the China Iron and Steel Association on June 8 last year - one month before the arrests - and gave information to Hu at the China World Centre, where Rio Tinto has its Beijing headquarters. He said Hu e-mailed the information to his superiors at Rio Tinto, who e-mailed back requesting confirmation.

Clearly, Rio Tinto was fully aware of the information-gathering activities of its employees in China. And yet it could not wait to hang those four men out to dry. That is certainly going to be a blow to the confidence of the many business executives in China who represent foreign companies, especially those of Chinese ethnicity, regardless of what passports they hold.

Foreign companies started flocking to China 30 years ago, when I was The Wall Street Journal's correspondent in Beijing and the country opened itself up to business with the outside world. At the time, most company reps were ethnic Chinese, chosen because of their linguistic, cultural and family ties.

Since then, ethnic Chinese have continued to dominate the ranks of foreign corporate representatives in China. What the Rio Tinto case tells them is that they cannot count on their employers to back them up when there is a serious problem; those companies are more concerned with ensuring they can keep doing business in China.

Rio Tinto was able to cite the bribery charge as the reason for dismissal. But China-based executives must know that, even if they are not involved in corruption, the market research they conduct for their companies could well be considered theft of commercial secrets, if not espionage,

Rio Tinto's action may make it much more difficult for foreign companies to find employees willing to serve in China. This could well become an important factor for companies that try to do business in China.

Frank Ching is a Hong Kong-based writer and commentator