Good Honest Dollar $$

It is extremely difficult to make an informed assessment as to whether Stern Hu or any of his colleagues really did breach Chinese law relating to industrial espionage and state secrets.

But the level of concern expressed within the international business community about events surrounding his detention and that of three of his colleagues in recent weeks is more than justified, and the detentions will rightly be seen as a great big red warning flag for business leaders in China.

 
Three extremely troubling aspects of the case
Mr. Hu, an Australian national who is Anglo-Australian mining giant Rio Tinto’s general manager for iron ore in China, was detained on July 05 by Chinese authorities along with three other Rio employees (of Chinese nationality) for bribery and stealing of state secrets.

As is often the case with China, the case has been conducted in a manner of extreme secrecy, and reliable information is extremely difficult to obtain. Accordingly, it is not possible to make any kind of informed assessment as to whether the allegations have any merit or otherwise.

And that brings me to the first of three extremely troubling aspects of the case from the point of view of the international business community: 

•   Poor handling of the case.

Perhaps it is not unusual to see lack of any form of transparency or accountability on the part of the Chinese government with regard to its handling of criminal investigations and associated legal proceedings.

But given the importance of this case, both from a point of view of China’s reputation within the international business community and from the point of view of it’s bi-lateral relationship with my home country of Australia (a key supplier of raw materials to the country), it is certainly fair to say that the case could have been handled better. Much better.

Alas, the case has been handled poorly. Despite Hu being an Australian citizen, the Australian government was only notified of his arrest three days after the detention took place. In addition, the New York Times reports that as of Friday July 17, more than ten days after their arrest, none of the accused had been allowed access to a lawyer.

Moreover, the case has been shrouded with secrecy. Chinese officials have released very little information at all, and the international community have had to rely almost solely upon a trickle of unverifiable information from the Chinese official English newspaper.

This may be standard practice from the viewpoint of the Chinese government, but it is no way to conduct a case where the global business and investment community is watching and bi-lateral relations with an important supplier are bound to be affected.

Senior staff of multi-national companies, it seems, fare little better than political dissidents when it comes to the treatment which they receive under legal proceedings within the Chinese legal system. 

•  Timing and context of the case.

As the New York Times duly notes, given the circumstances and background surrounding this case, the suspicion the detention of Hu and his colleagues represents a form of payback is difficult to avoid.

Prior to his detention, Hu has been the lead negotiator for Rio in annual price negotiations regarding the supply of iron ore to Chinese steel mills – negotiations which have (unusually) drawn out over several months and are believed to have become increasingly difficult. In addition, it is only a few months rejection on the part of Rio of an offer by Chinese state owned company Chinalco to purchase a twenty per cent stake in the company.

It is no secret that the Chinese government is not particularly happy about either of these developments, and regardless of the merits of the case, any idea that their arrests have no relation to these developments would appear to be very hard to swallow indeed.  

•  Have commercial negations become state secrets?

Consider what Chinese authorities are apparently claiming as evidence of espionage - files discovered on Rio computers, including Hu’s containing information about the activity Chinese steel mills including outputs, sales, purchasing plans, stocks of raw materials and schedules of production (refer article).   

Isn’t it more than conceivable that this type of information might well have been volunteered by the mills themselves in the ordinary course of ongoing commercial relations? Does this mean that possession of ordinary business information could now potentially represent a breach of the ‘Law Guarding State Secrets?’ (The scope of this opaque law was extended in March to cover commercial and industrial espionage)

Questions such as these present due cause for a considerable level of concern amongst execs whose regular business involves dealings with state owned enterprises in China.

In short, the international business community should be very concerned about the detention of Hu and his fellow Rio employees.

Very concerned.