Business as usual with Beijing despite spy arrests

CANBERRA - Australia has made it clear it remains open for business with China despite the arrest of Rio Tinto executive Stern Hu and growing corporate concern about the message Beijing is sending.

Hu and three Chinese colleagues were arrested last week on undisclosed espionage offences, but have not been formally charged and remain incommunicado in Shanghai.

Foreign Minister Stephen Smith confirmed yesterday that Beijing had provided no further details of the charges against Hu, a Chinese-born Australian citizen who led Rio Tinto's iron ore sales team in China. The allegations apparently centre on claims Rio Tinto used bribery to gain commercial information that exposed China's bottom line in bitter iron ore price negotiations.

But commentators are divided on the politics behind the case.

Some regard the arrest as retaliation for Rio Tinto's decision to dump a proposed US$19.5 billion deal with Chinese metals group Chinalco, forming instead a joint venture with BHP Billiton. Others believe it is connected to a shift in the power structure of economic management, placing much greater emphasis on national security considerations.

Beijing has said the charges against Hu involve matters of national security.

This has raised concern in Australia, where commentators fear China may be veering away from a more open economy and back to greater direct political control, with serious implications for Western companies.

The Australian Financial Review said Hu's arrest was a rude awakening and could rebound on China.

"The risk for Beijing is that this action, like the ruthless crackdown against the Uighurs last week, will be seen in the West as a retreat from recent achievements back to the repressive tactics of the past, and as a deterrent to Western interests doing business there," the Review said.

In the Australian, columnist Matthew Stevens said Australia needed to understand whether the apparent shifts in China's approach to Western commerce were likely to last, and therefore to have an impact on the still-burgeoning bilateral trade and investment relationship.

And China analyst Paul Monk told ABC radio: "You have got a regime which across the board - and it has now demonstrated this in regard to big business - arrogates to itself the right first of all to act arbitrarily, to decide what it construes as the law in its domain, and to change that at its own will."

Treasurer Wayne Swan told an Australian National University conference yesterday that Canberra was taking a responsible and methodical approach to Hu's arrest and would make appropriate-level representations, at the appropriate time.

But while he said that the message Beijing was sending to Western business was a matter for China to reflect on, Swan made it clear Australia remained intent on increasing trade and investment relations.

"As our second-largest trading partner in 2008, China is of particular importance to the Australian economy," he said.

Canberra is at present negotiating a free trade agreement with Beijing, and behind the headlines of the Rio Tinto-Chinalco row Chinese investment in Australia has continued apace.

This month China's state-backed Minmetals completed its A$1.7 billion takeover of Oz Metals with the formation of its new Australian-based company Minerals and Metals Group.

Swan said that since Labor came to power in November 2007, China-sourced investment proposals had been approved at the rate of more than one a week, most without media coverage and involving no issues of national interest.

He said Australia's aim was to maintain a market-based system where investment and sales decisions were driven by market forces, although careful consideration was given to any cases where a proposed resources investor was also a buyer of that resource - as had been the case with a number of recent Chinese investment proposals.

"The Australian Government recognises that China has an interest in ensuring that we are able to supply the resources that it requires to fuel its continued economic growth," Swan said.

"Australia has an interest in expanding its capacity to supply these resources, and we have a strong record of welcoming foreign investment - Chinese or otherwise - in doing so.

"In this context, Australia's investment-screening arrangements ensure Australia and China maintain a complementary and strategic investment relationship which delivers significant win-win benefits for both countries."