From the Editor

From the Editor - Lessons Learned in China

The four Rio Tinto employees arrested in China last summer have been tried and convicted on bribery and espionage charges. Because the arrests occurred so quickly after Rio Tinto broke off a potential deal with Chinese aluminum company, Chinalco, in favor of a joint venture with BHP Billiton many suspected at the time the arrests were retribution for a soured business deal. The media hype in Australia surrounding China’s appetite for natural resources, which some protectionists see as a threat to national security, led others to believe the arrests were politically motivated. After eight months of incarceration, the Chinese government indicted the four in February and the seriousness of the allegations was revealed in a 2½-day trial in March.

What was clear at the time was Chinese officials indeed had the evidence they needed because they acted so heavy-handedly. China could not afford to risk its international trading status on trumped up charges. As time wore on, neither the politicians nor the corporate lawyers could free Stern Hu, an Australian, and his three Chinese colleagues (Liu Caikui, Wang Yong and Ge Mingiang).

During the final proceedings, Judge Liu Xin disclosed information about the alleged bribes. Asserting what the Western world would probably consider insider trading in iron ore price negotiations, the judge said, “They used illegal means to obtain secrets that put the Chinese steel industry in a powerless position.” Except for the one Australian consulate representative who was allowed to witness part of the trial, many of the details remain sealed.

China is the largest consumer of natural resources and it will be the largest trading partner for the mining business for the foreseeable future. Unlike Google, the first corporation to take a stand against the emerging Asian power, the mining sector cannot walk away from the Chinese market. Rio Tinto recognized this early on as it delicately balanced mined-commodity sales with negotiations on the four jailed iron ore traders.

Similar to any other sovereign nation, China deserves respect and it should have the ability to bring charges on corruption and spying and prosecute to the full extent of the law. In addition to explaining the law, China needs to set a legitimate precedent and it has not done so. The lack of details regarding the espionage charges and the severity of the sentences should raise immediate concerns for any multinational company operating in China.

What, if anything, has the mining industry, or the world for that matter, learned from Rio Tinto’s experience in China?

Rio Tinto was not allowed to be involved in the court proceedings and it was denied access to its employees from the day they were arrested. The company’s quick response to the court findings, however, will set a precedent (for better or worse) for other corporate responses when workers get entangled in the Chinese legal system. The impulsive nature of the Chinese legal system and the fact that the courts reward guilty pleas with leniency should also be a consideration.

Business must remain cognizant of the fact that public information could be deemed so sensitive that its exchange would be considered industrial espionage. That alone adds another whole level of risk to business relationships. Companies doing business with China can’t be expected to obey the rules, if the rules are not clear. The lack of transparency at the trial only added to the murkiness of this issue. Without rules and transparency, all that’s left is trust.

Steve Fiscor, Editor-in-Chief, E&MJ

As featured in Womp 2010 Vol 03 - www.womp-int.com