LAWLESS China shuts the door on diplomats

By Michael Sainsbury and Mark Dodd
The Australian

CHINA has rebuffed the Rudd government and may force Australian officials to wait a further month for a second visit to detained Rio Tinto iron ore executive Stern Hu.

As senior Australian ministers warned that China risked damaging its international trade relations over Mr Hu's arrest, reports emerged that Rio Tinto was seeking as much as $9 billion in compensation for breach of contracts from Chinese steel mills.

Foreign Minister Stephen Smith yesterday criticised Chinese efforts to communicate with the Rudd government over the Hu case.

"We would have preferred that much of the information we have gleaned would have come from Chinese officials in the usual and normal diplomatic way, rather than it coming from the public statements of the spokesperson from the Ministry for Foreign Affairs and from an official Chinese government website detailing the advice of the Shanghai Bureau of State Security," Mr Smith said.

Chinese-born Mr Hu, the head of Rio Tinto's iron ore operations in China, and three other senior company officials were arrested in Shanghai by secret police and have been detained for a week without charge or legal representation.

Chinese officials have accused Mr Hu of espionage and stealing state secrets, sparking the most serious diplomatic challenge faced by the Rudd government since it came to office in November 2007.

It is now clear that the allegations against Mr Hu and his colleagues are directly related to prolonged and unresolved negotiations over benchmark prices for iron ore being sold by Australian miners to Chinese steel mills.

Chinese media reports said Rio - and possibly its one-time rival and new joint venture partner BHP Billiton - had been approaching Chinese steel mills in the past month, seeking compensation for broken contracts after the steel makers allegedly reneged on promises to buy certain volumes of iron ore.

"From the middle of June, Rio visited Chinese mills one by one, asking for compensation for contracts which were not fulfilled due to the financial crisis," the 21st Century Business Herald quoted an unnamed senior steel executive as saying.

"Rio calculated that they lost $5 billion in iron ore, and $4bn in shipments in the previous eight months due to the fact that Chinese mills postponed or even cancelled ships."

A Rio spokesperson declined to comment.

Mr Smith played down hopes of an early release for Mr Hu, warning that he was preparing for the "long haul".

"I am deliberately and advisedly making the point that under Chinese law and Chinese practice, Mr Hu is now subject to those processes," he said.

The month-long wait for another consular visit comes after Trade Minister Simon Crean, visiting Shanghai on Saturday, was granted access only to a mid-level official, Sha Hailin, the deputy secretary-general of the Shanghai government, to express his "strong concern" about the Hu case.

Mr Smith, asked if Mr Hu's detention could scare off foreign investors in China, said Beijing needed to "think very carefully about what implications, if any, it has for the international business community and the international investment community's view of China".

"I think one of the issues for the Chinese government to contemplate is the extent to which the circumstances of this case will cause the international business community any cause for concern," the Foreign Minister said.

The opposition continued to attack the government's response to Mr Hu's detention.
Opposition foreign affairs spokeswoman Julie Bishop said China had effectively "snubbed" Australia.

She accused Mr Smith of failing to act decisively with the Chinese and said he was now being treated with disrespect by Beijing.

"The government ministers must get personally involved and not just leave this to the bureaucrats and say that this is just a consular matter," she said.

Mr Smith defended the government's handling of the Hu case, saying it continued to press Chinese authorities for more information in a "firm but appropriately diplomatic way". The Foreign Minister admitted he had not called his Chinese counterpart, Yang Jiechi, but might do so in the future.

"I'll make a judgment about it if and when it becomes appropriate for me to raise this matter with my counterpart so will the Prime Minister and the Prime Minister made that clear last week," Mr Smith said.

In their first meeting with Mr Hu on Friday, Australian consular officials said the iron ore salesman was in good health.

China's 21st Century Business Herald reported that the evidence against Mr Hu included "an interior meeting memorandum provided by China Iron and Steel Association personnel".

Another source revealed that a senior executive at state-owned Shougong Steel, Tan Yixin, provided production information to Mr Hu.

Other Chinese news reports said executives from a raft of major steel mills across China, as well as executives from the CISA, which has been conducting the discussions, have been hauled in for questioning by authorities. As well as Shougang, Laigang and Jigang mills in Shandong, Baosteel in Shanghai and other mills in Hebei and Liaoning provinces are rumoured to be under investigation.

A senior executive of Baosteel, China's biggest steelmaker, has been reported to have been taken by police for interrogation. It has also been reported that the manager in charge of shipment at a large mill in Shandong as well as the executive of a large trader were also taken for interrogation.

Last year's iron ore contracts were struck at record prices of about $US90 a tonne, a 40 per cent lift on the previous year. China has been demanding a cut of between 40 and 45 per cent but Rio and BHP have insisted on a discount of only 33 per cent - the same agreed by Japanese and South Korean mills in May. The pricing of iron ore, the biggest input to the steel making process, has long been a delicate issue with China, which now consumes half of the iron ore mined each year and more than 60 per cent of seaborne volumes, which mainly come from Australia and Brazil.

Rio's iron ore chief Sam Walsh said at the weekend that the company remained surprised and concerned over the detention of its employees.

The company had still not been told by Chinese authorities of any charges against the employees.

Chinese lawyers who spoke to The Australian on the condition of anonymity said that, as no specific evidence against Mr Hu had yet been provided, it was not easy to judge what jail term he might face if found guilty. "Six months to 15 years, it depends on the evidence," one said. (JEG's: and if there is no evidence will there be a DASSK's casse here? without evidence will Mr Hu be charged?)

Additional reporting: Debbie Guest