China escalates Rio Tinto spying row

• Report accuses Rio Tinto of espionage over six years
• China claims activities cost country a potential $100bn

• Ashley Seager
  
• guardian.co.uk, Sunday 9 August 2009 18.00 BST
• Article history

China escalated its confrontation with mining company Rio Tinto yesterday when it accused the company of industrial espionage stretching back six years at a potential cost to the country of $100bn (£60bn).

Four Rio Tinto employees, including an Australian citizen, have been held in Shanghai for the past month. The latest accusations – which emerged on the website of the state secrets agency at the weekend – are likely to heighten tensions between Beijing and Canberra over their potential fate.

Four Rio Tinto employees, including an Australian citizen, have been held in Shanghai for the past month. The latest accusations – which emerged on the website of the state secrets agency at the weekend – are likely to heighten tensions between Beijing and Canberra over their potential fate.

Australian citizen Stern Hu, Rio's chief iron ore negotiator, and three Chinese colleagues were detained on 5 July on suspicion of commercial spying. No charges have been brought, but the state news agency Xinhua has reported that Hu was facing charges of obtaining sensitive industrial information through "abnormal means".

The incident could also signal a potential hardening of conditions for foreign companies currently doing business in China. The country's national administration for the protection of state secrets said the case should force Chinese officials and companies to do more to protect sensitive commercial information, and foreign businesses in China must come under stricter controls to deter them from spying.

"Our country has entered a peak period of commercial espionage warfare, and the threat to important economic intelligence and security of national economic activity increases by the day," the report claimed.

Contacts between local officials, experts and managers and foreign businesses should also be more strictly controlled, it said, adding that "traitors" were enriching themselves at the expense of Chinese businesses.

A Rio Tinto spokesman in London said: "We are clearly very concerned about our employees who have now been detained for some time. We believe that they acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behaviour."

The state secrets agency's report said Rio Tinto's commercial spying involved "winning over and buying off, prying out intelligence ... and gaining things by deceit" over six years.

"The large amount of intelligence and data from our country's steel sector found on Rio Tinto's computers and the massive damage to our national economic security and interests are plainly obvious," it said, adding Rio's alleged spying meant Chinese steel makers paid 700bn yuan (£61bn) more for imported iron ore than they otherwise would have.

The accusations will send shockwaves through the industry as China consumes over half of the world's iron ore, turning it into steel for making goods it exports to the west. Sales to China by Rio's operations in Australia account for about a fifth of the company's $60bn annual turnover.

In February, Rio said that Chinese state-owned aluminium group Chinalco would double its stake in Rio – listed in both London and Australia – to 18% in exchange for $20bn of investment. Rio's British shareholders protested and the deal was scrapped, to the annoyance of the Chinese authorities. Rio Tinto did a rights issue among existing shareholders instead.

The detentions followed months of fraying relations between China and Australia – a huge exporter of iron ore. The sides have been locked in talks over iron ore prices, which ran over a deadline of 30 June.

They were subsequently settled when Chinese steel mills agreed the same 33% cut in annual iron ore prices that other Asian steelmakers had agreed, even though the Chinese had wanted a 45% cut in the face of the deepest global recession for decades.