There's no doubt about it, 700 billion yuan (HK$793.8 billion) is a lot of money. Mainland officials say that's how much Anglo-Australian iron ore mining group Rio Tinto Group has cost the Chinese economy over the past six years by spying on Chinese steel companies. Details of the accusations are sketchy. But following the arrest last month of Stern Hu, Rio's general manager in China, we have a pretty good idea what Chinese officials are alleging. Their complaint is that Mr Hu bribed steel company executives to hand over confidential information about their order books, information that they believe would have given Rio an unfair advantage in annual negotiations over benchmark prices for iron ore supply contracts. So valuable do officials believe this advantage to have been that they say Chinese steel companies ended up paying an extra 700 billion yuan for their iron ore imports over the past six years. If the accusations were true, it would be as if Rio had stolen 523 yuan from the pockets of each and every man, woman and child on the mainland. In US dollar terms, at current exchange rates, it's a hefty US$102.4 billion: equal to the entire economic output of Vietnam last year, with the gross domestic product of Cambodia thrown in for good measure. However, on examination it rapidly becomes clear that that there is no way industrial espionage by Rio could have cost China anywhere close to US$102 billion. Let's assume for a moment that Rio really has been obtaining commercially sensitive information from China's steelmakers for the past six years and that it has been making full use of that information during negotiations with Chinese buyers to beat up the price of iron ore. The first thing we see is that, according to customs data, the total value of all of China's iron ore imports from Australia since the beginning of 2004 comes to just US$58 billion. So, if spying by Rio did indeed cost China an extra US$102 billion, the stolen information must have affected much more than just the price of Australian ore shipments to the mainland. In theory, this is just about possible. Since the beginning of 2004, China has imported almost 2 billion tonnes of iron ore at a total cost of US$168 billion. Benchmark prices for supply contracts are set in annual price talks between the world's big Australian and Brazilian miners and their customers, so if information pinched by Rio influenced every round of talks, and all of China's imports were at benchmark prices, it would be just about conceivable that China could have paid an extra US$102 billion. But that would mean Rio's espionage would have pushed up the average price of ore by a massive 60 per cent. Except that the calculation simply doesn't add up. For a start, until 2006 Chinese steelmakers took a back seat in price talks. Benchmark prices were set in negotiations between Vale, Brazil's largest iron ore miner, and customers in Europe and Japan. Information filched from Chinese mills by an Australian miner would have made little or no difference to the outcome. Chinese mills have played a prominent role in more recent negotiations. But even then, it is not clear that spying by Rio would have made any appreciable difference to the price of China's ore imports. As the first chart below shows, on average only about 60 per cent of China's ore imports are sourced from Australia and Brazil, and not all of those shipments are at benchmark prices. As a result, we can estimate that about half of China's ore imports are purchased on the spot market. And as the second chart below shows, over the past four years, spot market prices for iron ore imports into China have been at an average 33 per cent premium to the average price of imports from Australia. So talk of espionage by Rio costing China 700 billion yuan is stark nonsense. If Rio really was stealing Chinese trade secrets in order to get itself an edge in price talks, it clearly wasn't doing a very effective job because it ended up selling a lot of its ore at a discount to spot market prices. If anything, China benefited.