China turning into Russia? After last month’s arrest of the head of Rio Tinto’s
iron ore business in China, reportedly on suspicion of spying, one could be
forgiven for thinking so.
Russia, we mean a country in which ordinary commercial negotiations are
routinely subject to interference by state security forces, where foreign
companies face constant risk of arbitrary abrogation of contracts and
expropriation of assets, and business executives quite rationally fear for their
liberty and occasionally their lives.
it appears that a lot of people within the Chinese government were asking
exactly the same question, and desperately trying to convince their superiors
that the correct answer ought to be “No.”
On August 11 the Chinese
government finally levelled formal charges against the four Rio Tinto executives
arrested in Shanghai on July 5. The indictments were for theft of business
secrets and bribery – substantially less serious than the originally threatened
charges of stealing state secrets, which were tantamount to espionage.
the case serves as a timely reminder to enthusiasts inside and outside China who
have been busy trumpeting the “Chinese century” that China has a tremendous
amount of growing-up to do before it can begin to be taken seriously as a true
leader in the global economic order.
China has done a good job of not letting its opaque authoritarian political
system and vast legal grey areas get in the way of business. Annual foreign
direct investment flows that now exceed US$100bn testify to China’s success in
creating a stable and predictable business environment, despite well-advertised
Rio Tinto detentions, which elevated an acrimonious but ultimately quite
ordinary commercial dispute into a matter of national security, threatened to
destroy, at one stroke, an imperfect but notable reputation for reliability
built at great cost over three decades.
bland denouement averts that catastrophe. The coda will likely be a quick trial
in which Stern Hu, Rio’s Australian-citizen iron-ore negotiations boss, will be
convicted and then immediately repatriated to Australia, probably on some
spurious health grounds; his three less fortunate Chinese-national colleagues
will likely receive relatively light sentences of a couple of years.
short, the Rio case illustrates why China is not Russia.
Russia, which is in essence a strongman state where rules and laws are the
barest fig leaves for the naked exercise of arbitrary power by a small group of
people, China has a sprawling bureaucratic system characterised by
balance-of-power politics between different political groupings, bureaucratic
institutions, and commercial interests.
is distributed thinly enough among a variety of actors that only rarely can any
single actor impose its will unilaterally; complex negotiated solutions are more
common, and in these solutions commercial considerations weigh heavily.
should we cheer? Not really. If the best that China can say about itself is that
it is not as bad as Russia, it has a ways to go before it is entitled to be
taken seriously as a “responsible stakeholder” in the international economic
order, let alone the global leader that some of its more enthusiastic publicists
would claim it already is.
failure to meet even the most minimal developed-country standards of
transparency in what can only with extreme generosity be called the “legal”
proceedings against the Rio executives is a dismal reminder that Chinese law is
more a matter of closed-door bureaucratic negotiation than due process.
isn’t Russia - but it isn’t yet a modern country either.
China, Rio Tinto, Russia