Rio Tinto bribery case highlights tensions with foreign businesses in China

By John Pomfret
Washington Post Staff Writer
Tuesday, March 23, 2010

BEIJING -- Four businessmen -- one Australian and three Chinese -- pleaded guilty Monday to accepting bribes in a case that has highlighted the perils of doing business in China.

Lawyers and an Australian consular official told reporters that the Australian, Stern Hu, along with three colleagues at the Australian mining giant Rio Tinto -- Liu Caikui, Ge Minqiang and Wang Yong -- acknowledged to a court in Shanghai that they had taken bribes. The four disputed the alleged amounts, which ranged from about $1 million to almost $10 million.

Tom Connor, the Australian consul general in Shanghai who attended the hearing, said Hu was accused of taking bribes of about $146,500 and $790,000.

"Mr. Hu made some admissions concerning some of those bribery amounts, so he did acknowledge the truth of some of those bribery amounts," Connor said.

The case against Hu comes at a time of heightened tensions between Beijing and the Western business community, which for decades has been key to China's development. The West has brought in technology, management practices and billions in investment, helping transform China into an exporting powerhouse.

Western businesspeople now complain that they no longer feel welcome in China.

On Monday, the U.S. Chamber of Commerce in Beijing issued its most negative report on the business climate here in years. In a survey of 203 member companies, the chamber said, 38 percent felt shut out under new government policies designed to replace imports of high-technology products with Chinese-made goods. Last year, fewer than 25 percent of companies polled said they felt unwelcome in China.

Hu and his colleagues were arrested nine months ago and were charged with crimes under China's elastic state secrets laws. The charges were ultimately lowered to less-serious commercial secrets violations and bribery charges. Although Hu had originally retained a well-known defense lawyer, Duan Qihua, Duan did not appear in court Monday; Hu was represented by someone else.

The ongoing trial at the Shanghai No. 1 People's Intermediate Court has been closed to foreign media. Chinese authorities have allowed the Australian government some access to the court but will exclude consular officials starting Tuesday, when the trial focuses on allegations that Hu and his colleagues stole commercial secrets. The trial is supposed to end Wednesday.

The Rio Tinto arrests occurred nine months ago, as the firm was negotiating with representatives of Chinese state-owned steel mills over a price for iron ore. The Chinese side demanded a big cut in the price, but Rio rejected the bid. Other purchasers, including Japanese and South Korean mills, had already agreed to more modest cuts.

That left the Chinese state-owned mills at the mercy of the market. Within a year, the spot price of iron ore had increased more than 90 percent. At the same time, Rio had also approached smaller, private Chinese mills, cutting deals with them at the slightly higher fixed price, industry insiders said. The result was that China's powerful state-owned mills lost millions of dollars in potential profits and Rio's executive team earned the enmity of China's state-owned sector.

Many business executives worried that China was using its security services to punish Rio for making a large profit here.

In Beijing on Monday, Rio's chief executive, Tom Albanese, said the result of the trial "is obviously of great concern to us." But Albanese also signaled that he does not want business ties with China to be affected. On Friday, Rio announced that China's state-run aluminum giant, Chinalco, was ready to invest $1.35 billion to develop jointly an iron ore reserve in the West African country of Guinea.

"I can only say we respectfully await the outcome of the Chinese legal process," Albanese told a business forum Monday. His remarks were censored from a Chinese webcast reporting on the forum.

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