Category Archives: China-Australia

Rio 4 To Stand Trial

The industrial espionage case involving four employers of the Anglo-Australian mining company Rio Tinto  has entered its next phase. The four, who include an Australian citizen Stern Hu, have been indicted on on charges of bribery and stealing business secrets, Xinhua reports. They will stand trial in Shanghai in what promises to be another test of relations with Australia, and of the nerves of foreign investors which have been rattled by what seem to be a number of strikes at foreign companies in recent months. If found guilty, the Rio 4 could face up to seven years in jail on the commercial secrets charge, and up to 20 years on the bribery charge. Last week, Rio appointed Ian Bauert to run its operations in China. An old China hand, Bauert set up the company’s first China office more than 25 years ago.

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Palmer Faces The Perennial China Question: When Is A Deal A Done Deal?

How binding is an agreement of intent? Not an uncommon question when doing business with Chinese companies. Australian multimillionaire Clive Palmer’s trumpeted agreement with China Power International to sell it coal from the new Galilee Basin coalfield in northern Queensland turns out, it seems, to be more of a framework than a final contract.

Palmer and Queensland Premier Anna Bligh announced at the weekend what they said was Australia’s biggest export contact, worth $60 billion over 20 years. Hong Kong-listed China Power International Development, the named customer, issued a statement on Tuesday denying that it had reached such an deal. Palmer’s company, Resourcehouse, then said had got the name wrong. It had struck the agreement  with CPID’s parent state-owned China Power International Holding in Beijing. A CPIH executive then described the agreement as a framework.

Xinhua has reported that the two companies have signed “an agreement of intent” but have not yet started price negotiations. Premier Bligh is reported in the Australian press as saying that she had seen the contract and while it did not mention dollar totals, it did mention tonnages. Resourcehouse is now saying the price will be linked to market prices and casting the $60 billion figure as its estimate over the life of the agreement.

Echoes in all of this of the Australian securities regulators’ failed case against Fortescue Metals Group, which was accused in 2006 of overstating agreements with three Chinese companies to finance its Pilbara iron ore project. (The regulators are still appealing the ruling against them.)

This Bystander’s two-cents’ worth is that a final contract with China Power International will eventually get signed; China needs the coal and there is a lot of construction work for Chinese firms tied up in the deal.  But Resourcehouse has clearly jumped the gun, for which there will likely be a negotiating cost. It has also been left with some egg on its face that will need to wiped off before its possible initial public offering in March.

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$60B Australian Coal Deal Is Good Business For China

It is being billed as Australia’s biggest export contract, but by any measure it is a whopping deal. China Power International Development, an arm of China Power Investment, owner of Hong Kong-listed China Power, has contracted to buy $60 billion-worth of coal over 20 years from privately held Resourcehouse, starting in 2014.

Resourcehouse will be suppling 30 million tones of coal a year from the new Galilee Basin coal field in northern Queensland. The company is reported to be now planning its delayed initial public offering in Hong Kong for March to help fund the $8 billion development of the field. Much of the work will be done by Chinese companies. Metallurgical Corporation of China will build the mine and associated export infrastructure which includes a port and new rail link. Sino Coal International Engineering. China Communications Construction, and China Railway Group will be sub-contractors on the project. Export-Import Bank of China is providing $5.6 billion of financing.

Resourcehouse’s owner, Clive Palmer, who is one of Australia’s 30 richest men with fortune of $420 million, according to Forbes, has previous with China. In 2006 and 2007, he sold iron-ore-deposit leases to Citic Pacific for $415 million.

For all China’s plans to switch to green energy technologies, it is still heavily dependent on coal for power generation. The deal also suggests that relations between the two countries are back on a reasonably even keel following the so-called Rio 4 industrial espionage affair and a number of other points of conflict including Chinalco’s rebuffed attempt to buy into Rio Tinto and the visit to Australia of exiled Uighur activist, Rebiya Kadeer.

Keeping the project a largely all-Chinese affair won’t have hurt it either. But it does raise a question about how many of the expected 6,000 jobs that are forecast to be created by the deal will go to Australians.

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No Progress In Rio 4 Case

Kevin Rudd, Australia’s prime minister, seems to have to no change out of his Chinese counterpart Wen Jiabao when the two discussed the case of Stern Hu and three of his Rio Tinto colleagues who were detained by Chinese authorities in July on suspicion of stealing state secrets. Speaking on the sidelines of the ASEAN meeting in Thailand, Rudd said only that the case, which has strained relations between Canberra and Beijing, continued to be the subject of “intense and continuing discussion” between the two countries’ foreign ministries. Deciphering the diplomatic body language, those discussions aren’t making much progress. The four were  formally arrested in August on charges of stealing commercial secrets, but not on the more serious one of stealing state secrets.

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PetroChina, Exxon Strike Biggest Australia-China Trade Deal

PetroChina is to buy 2.25 million tons a year of liquefied natural gas from ExxonMobil’s part of the Gorgon gas field off Australia’s northwest coast (Release). The 20-year deal is valued at $41 billion and shows the growing economic ties between China and Australia despite the current political tensions over the Rio Four spying case and Uighur activist Rebiya Kadeer’s forthcoming visit to Australia that prompted Beijing to cancel a senior minister’s trip to Canberra. “China needs us, we need China,” Trade Minister Simon Crean said after the signing in Beijing of he largest-ever trade deal between the two countries.

The deal tops the 1.5 million tons a year of LNG India said it would buy from the still-to-be-developed Gorgon field last week. Chevron and Shell are the other energy majors involved. Gorgon is still awaiting final environmental clearance from Canberra, though these deals suggest that will be a formality, to the chagrin of Australian greens.

China is building more than 10 LNG terminals on the east coast to meet a five-year target to double its use of natural gas by 2010. PetroChina will open its first LNG terminal in Jiangsu in April 2011, and has plans to build another in Dalian and a third  in Tangshan.

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Rio Four Formally Charged

The Rio Four have finally been formally arrested on charges of  infringing trade secrets and bribery, Xinhua reports. A statement from the Supreme People’s Procurate said prosecutors approved the arrest of the four Rio Tinto employees, that investigations had showed they obtained China’s commercial secrets through improper means and that there was evidence of bribery involved.

The four, Stern Hu, who is an Australian citizen, Liu Caikui, Ge Minqiang and Wang Yong, were detained in Shanghai in early July. Rio has said its employees did nothing “unethical” and did not bribe Chinese steel mills for information.

Given the prominence of the arrests, formal charges hardly come as a surprise, though this Bystander notes in passing that the four were not charged with the more serious crime of stealing state secrets, which carries a potential life sentence on conviction. Stealing commercial secrets, our learned friends advise us, carries a sentence of up to three years imprisonment and/or a fine.

What to watch for next is which executives of which Chinese steel companies get fingered.

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A Clue To When The Rio Four Will Be Charged Or Released?

Conspiracy theorists start here: Xinhua has a report on the growing dispute with Australia over the detention without charge of four Rio Tinto executives, one an Australian citizen, on allegations of stealing state secrets. It is titled, China Striving To Create Fair Trading Environment, so you get its drift. But it concludes with the following tantalizing final paragraph:

But the spying case has cost the mining giant 100 billion yuan ($16 billion), with its market share dwindling by as much as 30 percent, according to a report by the China Times.

That is only $3 billion shy of the $19 billion that Chinalco was going to invest in Rio, before the mining company pulled the plug on the deal at the last minute, much to the chagrin of Chinalco and Beijing.

Could it be there is a measure there for how much longer the Rio Four will be held without charge?

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Canberra Getting Antsy Over Rio 4

Australia trade minister Simon Crean has called on Beijing to lay charges or release detained Rio Tinto sales executive Stern Hu, an Australian citizen, and three Chinese colleagues. The four men are accused of stealing state secrets in connection with the iron-ore price negotiations earlier this year. Rio had denied the allegations. The quartet has been in detention since July 5th without charge as Chinese law allows.

Trade relations between the two countries increasingly risk being harmed, Crean says, without the case being settled one way or the other. The Australian met his Chinese counterpart, Chen Deming, at the APEC trade ministers’ meeting in Singapore, where the issue came up and we understand Crean made his government’s position crystal clear.

China is Australia’s biggest trade partner, with iron ore exports to China accounting for $14 billion of $53 billion in bilateral trade, so the case is more likely to proceed at China’s pace than Canberra’s. And with the iron-ore price negotiations dragging past their June 30 deadline, no bargaining chips are going to be given away cheaply.

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Rio Arrests Tip Of New Anti-Corruption Crackdown?

Knives are being sharpened. China Daily is suggesting that Rio Tinto has been engaged in widespread bribery in the steel industry, with the natural resources company bribing executives from all 16 steel mills involved in the iron ore price talks. Five Chinese steel executives are now said to be under investigation. Is this the early stage of a new campaign to crack down on corruption in Chinese industry-especialy those sectors in which there has been a lot of foreign direct investment?

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Detention Of Rio Execs May Signal Shift In China’s Economic Security Policy

In any commercial negotiation, intelligence about the other side’s intentions is invaluable. At some point gathering information becomes corporate espionage. Where the line between the two is drawn is rarely clear, and in China, perhaps, murkier than in most places, and more a political than legal decision.

The detention without charge of Rio Tinto’s chief iron-ore salesman in China, Stern Hu, and three of his Chinese colleagues from Rio’s Shanghai office is a case in point. It is making many multinationals operating there look again at the security of their communications, while Australia’s foreign minister, Stephen Smith (Hu is an Australian citizen) has warned that it puts at risk a wide range of business dealings with the country. But this may all be more about internal politics than international trade.

The case is complex and unclear. The four men, all involved in negotiations earlier this year with China’s steel companies over iron ore prices, were detained on July 5th. They are accused of stealing state secrets and bribing Chinese steel makers for information. Chinese officials have given no details (there is no charge yet, so no evidence to support it is necessary, though the government says it has it: Catch-22; Chinese law lets people be held for investigation for some time with charges being brought).

Chinese press reports say the four Rio executives acquired information about an internal meeting of the China Iron and Steel Association regarding the price negotiations. Other press reports say that their computers have been seized, which could contain details of Rio’s negotiating tactics and other commercially sensitive information. (Rio hasn’t said anything publicly about computers as far as we can tell.) Yet more press reports say several Chinese steel executives are also being investigated and that one, from Shougang, China’s eighth-largest mill, has been detained.

The detentions also followed the collapse of a proposed $19.5 billion investment in Rio by Chinalco, Rio deciding late on to raise capital through a rights issue instead, and to strike an iron ore production joint venture with BHP Billiton, decisions that sat ill with Chinalco. That adds grist to the conspiracy theorists’ mill.

But the collapse of the Chinalco Rio investment was followed by the establishment of a top-level committee to take a tighter strategic policy grip on investment deals with the Party’s standing committee taking a leading role. President Hu Jintao appears to have endorsed the detention of the Rio four (the same President Hu who bailed from the G8 meeting in Italy last week to deal with the Urumqi riots; these days, we are seeing less of the once ubiquitous Prime Minister Wen Jiabao, and more of Hu.) Ever since the global financial crisis hit China hard last September, Chinese economic policy has become a national security concern (for the economic prosperity/social instability/political legitimacy nexus we have outlined frequently before). The Party’s survival strategists — the political risk managers and security people — not the economic planners and reformers are in charge. They appear to be moving from the macro — the 8% target growth rate, the 4 trillion yuan stimulus package to deal with the collapse of the real estate market, the fall in share prices on the Shanghai and Shenzhen exchanges, and the unemployment in the export workshops of the Pearl River Delta and other coastal regions — to the micro. While the reasons for that are only to be guessed at (anything from internal power struggles in the run up to the changing of the guard in 2012 to defense of regional fiefdoms to just old habits dying hard) if the Rio four’s detention turns out to be anything more than an anomaly, this is a significant policy shift.

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