China has demonstrated once again to its trading partners the risk of doing business in a country where the rule of law will not protect foreign companies from arbitrary State interference in business transactions.
Australia’s Foreign Affairs Minister Stephen Smith has confirmed that an Australian employee of mining company Rio Tinto has been arrested in Shanghai on suspicion of spying and “stealing state secrets”, whatever the hell that means. Three other Rio staff have also been detained since Sunday. It is widely speculated that the arrest is in retaliation against Rio Tinto for ditching a deal with a Chinese state-owned mining company Chinalco, and for subsequently refusing to acquiesce to Chinese steelmakers demands for unreasonable cut in contract price.
So this is how it works: if you can’t steal someone else’s company or force them to go bankrupt, then you get your big boss involved and bang them up in jail. Now that will teach you foreign devils a lesson about how to show RESPECT for your future masters! After all, Australia is just China’s backyard. You can’t stop us from getting what we want.
Most importantly, this is not the first time China has turned hostile in face of major setbacks in a business deal. According to a Reuters report, Chinese authorities arrested a Chinese manager of Shell in 1996 and charged her for stealing state secrets regarding plans by Royal Dutch Shell to build an oil refinery in southern China. The putative “secrets”, according to media reports, involved information on the financing and environmental implications of the project. The arrest was in retaliation against Shell for pulling out of a business venture with the state-owned China National Offshore Oil Corporation.
The following is an excerpt from the Reuter report. I am joining the author’s call for the Chinese government to immediately explain why the Rio staff, who are part of its iron ore sales team, have been held:
Chinese anger at Rio Tinto for reneging on a deal with aluminium group Chinalco and opting instead for an iron ore joint venture with BHP Billiton last month was understandable. Indeed, China has good reason to question the Rio-BHP JV on competition grounds.
But the detention of four Rio Tinto employees, on suspicion of espionage according to Australia’s foreign minister, bang in the middle of sensitive negotiations on iron ore exports to China is a dangerous step in the wrong direction. Beijing must either justify the arrests publicly or release the Rio staff immediately.
Rio is locked in tough negotiations with China’s massive steel sector following its refusal to agree to Chinese demands for a bigger cut in contract prices. As a result, Rio is for now at least charging its Chinese customers spot market prices, which are considerably higher.
Meanwhile the world has been given every reason to expect China to continue developing its legal system in accord with the Daffy Duck school of jurisprudence and forensics.