| Related Video NTDTV |
China has formally charged top Rio Tinto executive, Stern Hu, a move that highlights the dangers of doing business in China.
Shanghai born, Hu, an Australian citizen, along with three Chinese colleagues, were detained in July last year on allegations of espionage and violating state secrets.
They were formally indicted Thursday, February 12, on lesser charges of industrial espionage and bribery. While it is expected they will get 7–11 year sentences, it is possible they could be jailed for 27 years, if given the maximum sentence by the Chinese courts.
Dr. John Lee, a China analyst from Australia’s Center of Independent Studies, says the charges against Hu have been determined politically and foreign companies are realizing they are now equally vulnerable to a change in favor.
“Even investment banking companies are starting to realize China is not the risk-free, money-making market playground that they thought it was,” he told The Epoch Times. “I think anyone dealing directly with China now understands the degree of corruption, of political interference, the close links between business and the state.”
Hu’s arrest also fits a definite Chinese Communist Party (CCP) strategy of targeting ethnic Chinese working for foreign companies, to make a point. Because of the lack of transparency at every level of society in China, foreign companies rely on ethnic Chinese to facilitate business in the mainland, Dr. Lee said. This approach has now become very dangerous.
Hu Knew Too Much
Hu’s crime, however, was to be too good at his job. He knew too much about the iron and steel industry on the ground in China and used that knowledge to negotiate excellent prices with Chinese steel mills for the big Australian miners.
According to Fairfax news, Rio Tinto had engaged a Shanghai consultancy firm to gather data on the ground from hundreds of iron ore mines in China. When the Chinese Iron and Steel Association (CISA) bluffed that China had plenty of iron ore and did not really need the iron ore from Rio, Hu, as chief negotiator, knew exactly how much iron ore China really had and was able to leverage negotiations accordingly
“When it appeared that they [CISA] were losing, and they were losing because Stern Hu was in possession of more superior information than the Chinese side, they took the extreme ruse to actually detain him on espionage grounds,” Dr. Lee said.
U.S. Steps In
Following the arrest of Hu and his three colleagues—Ge Minqiang, Wang Yong and Liu Caikui—last year, Australian Prime Minister Kevin Rudd spoke out strongly, saying the world was watching and would judge China accordingly.
However, it was not until U.S. Commerce Secretary, Gary Locke, took up the issue on a visit to China soon after Hu’s detainment, that China conceded ground, downgrading the initial allegations from stealing state secrets to ‘trade secrets.’
Mr Locke said at the time that the issue was of great concern for international business and investment.
“We need to have transparency, we need to have assurances and confidence that people working for these multinational companies, international companies, American companies, will be treated fairly,” he said on ABC.
Mr. Rudd and Australian Foreign Minister, Stephen Smith, have continued to raise the matter with their Chinese counterparts, but Chinese officials say they should keep out of it.
“We say that it has nothing to do with the Australian government, it is just a legal case,” said Zhang Junsai, China’s ambassador to Australia, in September last year.
But Chinese lawyers say the case is too big to be decided in court and the case will have to go to executives in the CCP now.
“It is not written into law, but the general practice is they report into the party and the Shanghai party must listen to the central party,” Beijing defence lawyer Zhang Kai told News Limited.
In the case of Hu and his colleagues, the Political and Legal Affairs Committee of the Shanghai Municipal Communist Party is expected to refer the matter to the Beijing Central Committee. The general secretary of that committee is hard liner Zhou Yongkang, head of security and a member of the nine-member Politburo Standing Committee, which rules the country.
No Rule of Law
Dr. Lee says what constitutes a trade secret in China is subject to the whims of interpretation and this should be of grave concern for foreign companies wanting to do business in China.
“It is one off those charges you can really inflict on almost anyone who wants to do business there, and in that sense the law is applied politically,” he explained.
Such free interpretation also highlights fundamental differences in the application of the law in China.
“There is no rule of law, it is actually exploiting law,” he said, adding, “It is the pretence of law, as opposed to rule of law.”
In terms of the bribery allegation, that would also affect every foreign company working on the ground in China. Information of any sort is so tightly controlled that it is common practice to pay money for access to data, Dr. Lee said.
“You can’t get it in the normal means of Western markets.”
Implications
While the U.S. intervention does indicate that external pressure works with China, the prospects for Hu do not look good.
“It would take enormous political pressure from the Americans for Stern Hu to be released, and right now, given the downturn of the U.S.-China relations, I don’t think that is priority,” Lee said.
Dr. Lee believes it is critical, that Hu’s case is not forgotten. China’s lack of respect for rule of law has broader implications right through to foreign policy in the region.
“America, for example, has gained a lot of credibility, because even though it is superpower in the region, it has voluntarily bound itself to agreed laws and processes. It’s not clear that China will do that,” Dr. Lee said.
Friends Read Free