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A Slap on the wrist due to economic interests?

TeeKee

Alfrescian
Loyal
Australian PM raises stakes in China spy case
By Koh Gui Qing
2 hrs 48 mins ago


SYDNEY (Reuters) – Australia's prime minister raised the stakes on Wednesday over China's detention of an Australian mining executive on suspicion of spying, warning "our Chinese friends" the world was watching how it handled the case.

Confidence in China's ties with Australia, its biggest supplier of natural resources, and the iron ore trade in particular have been threatened since China detained four of Anglo-Australian miner Rio Tinto's staff on July 5.

The Shanghai-based staff, including Australian Stern Hu, Rio's top iron ore salesman there, are accused of stealing state secrets from Chinese steel mills that could be used to gain an advantage in negotiations over annual iron ore prices.

The detentions have raised concerns about Australia's $14 billion iron ore trade with China and the broader risk of doing business in the world's third-largest economy.

On Wednesday, a steel-industry journal quoted traders as saying Rio Tinto and BHP Billiton, Australia's two biggest iron ore miners, had stopped taking spot orders for China, their biggest customer. Iron ore is used to make steel.

But the Steel Business Briefing did not give a reason and it made no connection with the detentions or with failed iron ore price talks, which had been due to conclude last month. Rio Tinto said shipments were running normally while BHP declined comment.

"I am not sure BHP shareholders would be very happy if the company has decided to stop selling its major product to its major customer," said Ben Westmore, commodities economist at National Australia Bank. "It makes no sense."

RUDD UPS THE ANTE

Prime Minister Kevin Rudd, under intense domestic pressure to free Hu from detention without charge, noted Australia's huge economic interest in China but said it wasn't a one-way street and cast the affair as a matter of wider, international concern.

"I also remind our Chinese friends that China too has significant economic interests at stake in its relationship with Australia, and with its other commercial partners around the world," Rudd told reporters at an impromptu news conference.

"A range of foreign governments and corporations will be watching this case with interest and will be watching it very closely, and they will be drawing their own conclusions as to how it is conducted.

"It is in all our interests to have this matter resolved."

Yao Jian, a spokesman for China's Commerce Ministry, told a regular news conference that the Rio case would not affect the environment for foreign direct investment in China, which has fallen from year-earlier levels for nine months in a row.

Chinese investigators have questioned executives at several steel mills in a widening probe of alleged leaks of state secrets to Rio Tinto, steel officials and Chinese media have said.

Rudd said he would pursue every avenue to free Hu in a case that has cast a shadow over bilateral trade worth $53 billion last year. China is Australia's biggest trade partner.

However, the saga could be protracted.

Chinese law allows people to be detained for several months at least and interrogated without access to a lawyer, before being formally arrested and charged. Sentencing in a state secrets case can range from a few months jail to death.

So far the issue has had little impact on Rio's Australian share price, which is up 1.8 percent following news of Hu's detention. Its London shares are up 1.7 percent with investors focused on signs of a global economic recovery.

PRICE NEGOTIATIONS IN LIMBO

The investigation has left 2009 iron ore price negotiations between China's iron and steel association and miners Rio, BHP Billiton and Brazil's Vale in limbo.

However, some Chinese state-owned major steel mills had agreed to interim deals to buy iron ore at 33 percent less than last year, the rate rejected by the association leading the talks, the China Business News reported on Wednesday.

Spot iron ore bulk carrier bookings have slowed to about half a dozen in the first half of July versus about 40 a month for the first half of this year, while brokers say spot bookings for Brazilian iron ore have surged to their highest in years.

Iron ore spot prices in India have also extended their gains this week, with dealers reporting still strong Chinese demand.

The market signals suggest Chinese mills are still buying ore, just not from Australia, but whether that's because Rio and BHP Billiton have opted to hold back supply or because the Chinese buyers are seeking their ore elsewhere is unclear.

Rudd, a former Beijing diplomat and fluent Mandarin speaker, is under domestic pressure to show he can exert some influence in China to at least shed more light on the case.

Despite making more than 20 official representations to China over the affair, including three summonses to Beijing's envoy to Australia, Rudd said on Wednesday he was still seeking more information on exactly what Hu was alleged to have done.

The secrets alleged to have been stolen reportedly relate to the China Iron and Steel Association's (CISA) negotiating stance as well as commercially sensitive information such as mill production plans, iron ore stock levels and import information.

(Additional reporting by Bruce Hextall in Sydney, Lucy Hornby in Beijing and Nick Trevethan in Singapore, writing by Mark Bendeich and James Thornhill; editing by Dean Yates)
 
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