Saturday, July 25, 2009

China thought we won't care for Hu

By Hamish McDonald

Stern Hu is not Schapelle Corby. The Chinese communist chief, Hu Jintao, and his secret police might not have been too familiar with how someone becomes a tabloid media victim-celeb.

But this was the sort of calculation running through their minds in July when the Ministry of State Security was given the green light to haul in Stern Hu, a Chinese-born Australian citizen who is the Shanghai-based iron ore marketer for Rio Tinto, and three of his Chinese colleagues.

The assumption was a Western country would not get very roused by the misfortune of a citizen who didn't have a white face, someone naturalised fairly late in life and working back in his country of birth. It's a mirror of a deep-seated perception among the Chinese themselves. Some people find it hard to keep ethnicity distinct from citizenship or nationality.

If you want to hit back at a foreign country or organisation, don't pick on the obvious foreigner with a greater chance of becoming a martyr back home, pick the Chinese face. Instead of everyone assuming innocence, as with Corby, people will wonder if it's not really guilty as charged.

Hu and colleagues are detained while State Security investigates allegations they improperly obtained inside information from the Chinese steel industry during negotiations for iron ore supplies. The suggestion is this was obtained by bribery, and State Security is said to be quizzing steel company executives about largesse from Rio Tinto (which flatly denies any practice of bribery).

The Chinese system runs on the oil of bribery, kickbacks and banqueting said to amount to tens of billions of dollars a year. Foreign companies tread a wavy line separating hospitality and "facilitation" from graft.

Only this week, the Communist Party's Propaganda Ministry had to order internet search engines to block all keywords relating to allegations a company making airport security screening devices, Nuctech, run by Hu Jintao's son, Hu Haifeng, had paid bribes to win a sale in Namibia.

Why make a case against Rio Tinto now? There has been speculation the arrests were a payback for the failure of Chinalco's bid to double its stake in Rio Tinto, and/or anger at the concerns about Chinese military power raised in Canberra's Defence White Paper.

The more that comes out in China, however, the more clearly the arrest is related to the iron ore negotiations, and a battle between State and Big Capital inside China itself.

Officialdom in the Commerce Ministry had been appalled at the way the three big global iron ore suppliers, Rio Tinto and BHP Billiton from Australia and Vale from Brazil, had been getting massive price rises in annual contracts with big Chinese steelworks.

While the economy was running white-hot, the big steel firms worried more about supply than price, which they could always pass on to customers, or excess supply, which they could sell at higher spot-market margins to small Chinese steel foundries which weren't authorised to import.

This year, the ministry levered the China Iron and Steel Association into the negotiations, to present a united front to the big three miners and take advantage of the economic slowdown. It was likened to medieval China's six "warring states" coming together to fight an invader.

After Japanese and other steel customers agreed on a modest 33 per cent price cut, winning a better deal for China became the public goal of the association's chief, Shan Shanghua. "The price of iron ore should be reduced by more than 40 per cent, and return to 2007 levels," he insisted.

Instead, the negotiations were in stalemate beyond the expiry of the old contracts on June 30, with the spot price of iron ore far above what the Chinese would have got with just a 33 per cent cut. It can't be any coincidence that Stern Hu was arrested on July 5, just as this self-inflicted economic blow and humiliating loss of face for the officials became apparent.

A Chinese online newsletter, the Economic Observer, quoted a Baosteel source saying this was "just the start" , and that "the Rio Tinto affair is really a struggle between the market power of China's steel companies and the political power of China's government planners".

Stern Hu can look forward to up to 19 months' detention, by recent precedent in State Security cases, before he is brought to court. He is entitled under a bilateral treaty to monthly consular visits by Australian officials, but not to a lawyer. Nor can a lawyer engaged for him carry out any investigation to prepare a defence.

When the trial is held, family and media cannot attend, diplomats may or may not be allowed to observe, witnesses are not always called and the judges are subject to direction by a Party supervisor in the backrooms. Once charges are laid, an acquittal is unheard of: the best the convict can hope for is a lenient sentence for co-operation and an early deportation on "medical grounds".

What can be done? Not much use pointing out the failings of the Chinese legal system - best to convince leaders that their officials are inflicting massive self-damage. China's claim that its would-be overseas investors like Chinalco operate separately to the state has been shot to bits. Its steel industry is paying more for iron ore than Japan's or Korea's. The "dark side" of the Chinese system is being emphasised to the outside world, undercutting Beijing's "soft power" offensive.

Australian leaders have been soft-pedalling in public. In Shanghai, the West Australian Premier, Colin Barnett, wanted to talk about China's fantastic opportunities, not the Hu case. The Foreign Minister, Stephen Smith, came out of a talk with his Chinese counterpart, Yang Jiechi, saying they'd agreed the case should not "get in the way generally of the bilateral relationship".

Let's hope they're saying in private just how much damage this case can do, and how much it is costing China itself.


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