Chinese President behind Stern Hu 'spy' probe (Burmese a must read)

By staff writers - NEWS.com.au

Arrested ... Australian Rio Tinto executive Stern Hu will be unable to see Aussie consular staff for another 30 days / Supplied

* President Hu Jintao behind investigation
* Rudd Government rebuffed over Rio exec
* The Australian: Beijing ups the humiliation

CHINESE Government sources say President Hu Jintao personally endorsed the Ministry of State Security investigation into Rio Tinto that led to the detention of Australian iron ore executive Stern Hu and three staff.

The investigation appears to be part of a big realignment of how China manages its economy, with spy and security agencies promoted to top strategy-making bodies, The Sydney Morning Herald reports.

The sources, who say they are familiar with details of the Rio Tinto case that have not been made public, say the inquiry began before Rio Tinto broke off its $US19.5 billion ($24.89 billion) Investment deal with Chinalco and joined iron ore production forces with BHP Billiton on June 5.

The revelation comes as The Australian reports China has rebuffed the Rudd Government and may force Australian officials to wait a further month for a second visit to Mr Hu.

Senior Australian ministers have warned that China risked damaging its international trade relations over Mr Hu's arrest, with new 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.

Arrest 'not revenge'

"This (arrest) is certainly not 'revenge' for the Chinalco deal not going through," The Sydney Morning Herald quoted a Chinese government source as saying.

"It is part of a considered, all-of-government response to the general resources question that was made after considering the likely international response.''

The Australian Government declined to comment yesterday night on the allegation that President Hu had endorsed Mr Hu's arrest.

Australian officials in Canberra and Beijing will seek more details from Chinese authorities today about the circumstances of his arrest eight days ago. He is accused of bribery and undermining China's economic security.

The elevation of Chinese economic policy to a top national security concern began late last year with the collapse of the Shanghai and Shenzhen sharemarkets, the weakening of the real estate market and difficulties with manufacturing exports in coastal regions.

Rio Tinto wanted compensation

Meanwhile, Chinese media reports said Rio Tinto - 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 of up to $8 billion for broken contracts after the steel-makers allegedly reneged on promises to buy certain volumes of iron ore.

A Rio Tinto 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".

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.

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".

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

Read more: China Shuts the door on diplomats