China steels for Rio Tinto court case
By Wu Zhong, China Editor

HONG KONG - A Shanghai court began on Monday morning a two-day trial of four employees of Anglo-Australian mining giant Rio Tinto, including Australian national Stern Hu and three Chinese colleagues, on charges of bribery and industrial espionage. If convicted they could each be jailed for up to seven years for a single offence. A combined penalty could be 20 years in prison.

Dozens of journalists gathered outside the Shanghai court, but only a few reporters, possibly from China's state-run media, were allowed in. The Australian consulate general in Shanghai, Tom Connor, declined to comment before entering the court room.

Dow Jones Newswires have reported, quoting defense lawyer Tao Wuping, that Hu and one of the Chinese fellow employees would plead guilty to bribe-taking. It said Hu had been charged with accepting 6 million yuan (US$961,223), while fellow defendant Liu Caikui faced charges of taking 3 million yuan. Both would plead guilty to accepting bribes while contesting the amounts involved, said Tao, who represents Liu.

Whatever the sentences, the highly-sensitive case has aroused wide attention and concern outside China since Hu and his colleagues were detained by the anti-espionage Shanghai State Security Bureau. Reportedly, they were arrested on suspected espionage of "state secrets". Doubts and controversy have focused on whether they would be given a fair trial.

The detention of the four came at a sensitive time when Rio Tinto was acting as lead negotiator for global iron ore suppliers in price talks with Chinese steel mills - Hu was Rio Tinto's senior executive in China in charge of iron ore. Few details of the allegations against the suspects have been made public. At that time, Rio Tinto had also just rejected a Chinese bid to buy a US$19.5 billion stake in the miner. Naturally, suspicion arose overseas about China's "ulterior motives".

After Hu's arrest, China Daily reported that Hu had been in close contact with a senior executive from the Shougang Group, the sixth-largest steelmaker in China. The executive, Tan Yixin, head of Shougang's iron ore export and import business, was arrested last July in connection with commercial crimes, the report said.

At the time of the arrests, Rio Tinto quickly denied any wrongdoing by the company or its staff. Australia's Prime Minister Kevin Rudd has called throughout the executives' eight months in detention for the case to be dealt with quickly, fairly and transparently.

In early February, the top branch of the Shanghai People's Procuratorate announced that it had decided to prosecute the four Rio employees - Hu, former head of Rio Tinto's Shanghai office, and his Chinese staffers - Wang Yong, Ge Minqiang and Liu Caikui - with bribery and stealing commercial secrets. Shanghai's No 1 Intermediate People's Court accepted the case.

A statement by the court said prosecutors accused the four of "taking advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises". It said they lured the Chinese enterprises' executives with promises, or through other illegal means, to obtain the steel companies' commercial secrets on multiple occasions, with "extremely serious consequences" for the companies.

Last week, the Shanghai court stated that as the trial dealt with commercial secrets it would be closed to the public and consular staff.

In response, Rudd warned China that "the world will be watching" how it conducts the trial. Australian Foreign Minister Stephen Smith reiterated that Australia had requested its officials be present for the entire trial, not just the bribery proceedings, though he conceded that even in Australia there were cases in which trials were conducted in private.

In a response, a Chinese Foreign Ministry spokesman, Qin Gang, said China did not want the Rio Tinto case to be politicized and negatively affect China-Australia relations. Qin said Chinese authorities would handle the case in line with legal procedures and consular agreements with Australia.

Two key issues are raised by the case, apart from judgement of China's rule of law. The first is whether the case has a political undercurrent, given that the charge was changed from "spying on state secrets" to "stealing commercial secrets". The second is whether a closed-door trial on "stealing commercial secrets" is acceptable.

Contrary to overseas opinion, many analysts in China believe the change in the charge represents progress in China towards an improved rule of law.

China's Law for Protection of State Secrets, effective since 1989, has a broad and vague definition of "state secrets" (even now the National People's Congress is considering a major revision). The "state secret" that may be relevant to the Rio case is "secret affairs regarding national economy and social development".

According to the Shanghai court statement, Hu and the other three were prosecuted for luring executives from Chinese enterprises with promises, or through other illegal means, to obtain the steel companies' commercial secrets.

According to Chinese media reports, they worked hard to obtain the tactics that the state-owned steelmaker and iron ore importers were going to use in fraught price negotiations with Rio Tinto, giving the latter an upper hand.

This, according to an article in August 2009 on the official website of the State Administration for Protection of State Secrets, by a retired official, cost China a total of about 700 billion yuan in past years.

The allegation outraged the Chinese public and there were calls for Hu to be given the death penalty to teach "national traitors" a good lesson. (Hu is a naturalized Australian national but a Chinese-born citizen).

"Under such circumstances, the change of the charge to 'stealing commercial secrets', which has lesser punishment, marks progress toward the rule of law. China now adopts a market economy in which a state-owned enterprise, big as it may be, is regarded as a commercial company. It would be ridiculous to include policies and decisions of such a company as 'state secrets'," a sociology researcher with the Chinese Academy of Social Sciences (CASS) in Beijing said.

In regard to the second issue, a retired law professor at Nankai University in Tianjin laughs at overseas concerns over a closed-door trial related to "stealing commercial secrets".

"I think overseas companies in China should be very happy with such an arrangement. China for them is a foreign land, and they have more 'commercial secrets' to protect. Without this stipulation, a domestic firm could easily sue a foreign-invested company and force it to reveal its 'commercial secrets' in court. Would it like it?" he asks. According to China's Civil Procedure Law, a trial can be held behind closed doors if it involves state secrets, privacy or commercial secrets.

A case is hand is Google, the US Internet search engine giant. Google has threatened to close its China operation - Chinese authorities have warned that its pullout must follow Chinese legal procedures. Among others, Google may have to deal with a number of lawsuits against violation of intellectual property rights.

At the end of last year, a Beijing court began to deal with a lawsuit filed by a female Chinese writer, whose pen name was Mian Mian, against for including her works in Google Books. required that the trial be closed to the public, citing protection of its "commercial secrets".

"Like Google, China's state-owned steelmakers have their 'commercial secrets' to protect. One must not assume that because they are state-owned they must be completely naked in business operations," said the retired law professor at Nankai University.

He said the charge in Hu's case should not be disputed. "Chinese law has strict stipulations on [being charged for] taking and offering bribes, so much so that [the law] has been criticized for protecting corrupt officials. Without hard evidence, authorities would not easily charge someone with bribery. Not to mention that Stern Hu is a foreign national."

Hu may have been unlucky enough to be caught red-handed or with hard evidence. "In fact, it is a known 'secret' in China that executives offer bribes to officials to get their businesses going or exploit their positions to take bribes. But so far few have been caught and dealt with by the law."

Chinese analysts also reject as a bluff the prospect of Hu's case, whatever sentence he may receive, having a serious, negative effects on Sino-Australian ties or Chinese firms' relations with Rio Tinto.

Last October, three months after Hu's arrest, foreign minister Smith said relations with China were back to "business as usual". The countries held high-level defense talks that month and China has signed several natural-resources deals.

In early February, Rio Tinto appointed Ian Bauert as its new China operations chief to replace Hu. Bauert set up the company's first China office more than 25 years ago and speaks fluent Chinese.

Last Friday, after the trial of Hu was announced, Rio Tinto Group, parent of Canada's Alcan, signed a US$1.35 billion pact with Chinalco under which the Chinese metals conglomerate will help develop Rio's massive iron ore reserves in Guinea, West Africa.

Coincidentally, Tom Albanese, chief executive officer of Rio Tinto group, said at a forum in Beijing on Monday that his company's relations with China were "long-term and very important". Rio Tinto would strive for rebuilding and strengthening its relations with China, according to Xinhua News Agency.

This suggests Hu's is an individual case within China's legal jurisdiction. "The days that a foreigner could enjoy 'extra-territoriality' went long ago, after the founding of the People's Republic of China [in 1949]. Hu did what he did on the soil of China, hence he is subject to Chinese law. And what he did, according to the prosecution, is common criminal offences. You can criticize the imperfection of China's rule of law and demand improvement, but when you are in the country, you still have to abide by it," the retired law professor says.