Foreign companies should abide by China's laws and regulations,
a Chinese government spokesman said Tuesday even as Australia
continued to press for details about the arrest of its citizen, an
employee of Rio Tinto PLC, for the alleged theft of state
secrets.
But it was unclear whether the probe had expanded to involve
other players besides the Anglo Australian miner as media reports
suggest.
Stern Hu, the head of Rio's iron ore operations in China, was
detained on July 5 along with three Chinese employees of Rio and
Chinese authorities have said on official websites that they have
evidence he stole state secrets. The arrests have been linked to
data shared in relation to the iron ore pricing negotiations
between China and the big miners.
Some analysts and market watchers have said that BHP Billiton
Ltd. could also be under investigation by Chinese authorities,
given the similarities in its strategy for negotiating iron ore
prices.
Media reports have identified Chinese companies such as Shougang
Group, Baosteel Group Co., Anshan Iron & Steel Group, Jinan
Iron & Steel Group and Laigang Group as being involved in the
probe.
"BHP Billiton is unaware of any investigation," a BHP
spokeswoman told Dow Jones Newswires.
A senior executive from Anshan Iron & Steel Group said no
officials from the company are involved in the investigation.
Qin Gang, a spokesman with China's Foreign Ministry, said at a
regular briefing that the arrest of four Rio employees and the
investigation isn't a signal China will restrain the activities of
multinationals in the country.
When asked whether executives from other steel companies were
also under investigation, Qin said he wasn't familiar with the
details of the case, but said individuals related to the Rio case
are being investigated. He didn't elaborate.
In Canberra, Australian Prime Minister Kevin Rudd said he met
with China's vice foreign minister on the sidelines of a Group of
Eight meeting in Italy last week to discuss Hu's detention.
Rudd told Australian Broadcasting Corp. radio that the Rio case
was complex, and consular officials were still seeking more
detail.
The Australian government has been under sustained fire from
opposition lawmakers for its perceived lack of action on the Hu
case. They argue that Rudd, a Mandarin-speaking former diplomat to
China, should be using his influence to fast-track Hu's release.
The government continued Tuesday to resist such calls amid growing
fears that the episode could permanently damage economic relations
between China and Australia and alter the way international firms
do business in China.
Australian Treasurer Wayne Swan, speaking at a conference on the
Australia-China relationship, said that a swift resolution on Hu's
detention is desirable, but the government is equally preparing for
a "long haul".
Swan said that "megaphone diplomacy" will not resolve any of the
issues surrounding the detentions, signaling Australia will
continue its behind-the-scenes approach.
Despite the detentions, discussions between Australia and China
to secure a free trade agreement are continuing and the government
continues to welcome foreign investment into Australia, Swan
said.
"Australian government ministers, including myself and the prime
minister, have been working with key Chinese ministers to find
common ground to resolve a number of contentious and sensitive
issues between us," the treasurer said.
Some analysts say the Rio arrests are a wake-up call to
Australia on the political risks of doing business in China.
Michelle Applebaum, an analyst with the Chicago-based Steel
Market Alliance, said a new economic model is likely to emerge
between global iron miners and their single biggest customer,
China, from the Rio arrests, as suppliers cut back on cash sales to
Chinese steelmakers in favor of European, Japanese and South Korean
customers who have already agreed to price cuts in annual price
talks.
"Ultimately, it will be the Chinese steelmakers who will now be
forced to bear the cost of these new variables - as the iron ore
majors and other western companies who depend on sales to China
begin to assess the true cost of serving the region," she said.
"Bullying behavior backfires."
"In our view, Beijing badly misplayed their hand in the ore
negotiations this year, demanding a 40%-to-50% price cut while
letting other global ore buyers set the new pricing structure,
which came in at a cut of 33%," Applebaum said.
"While China was stretching out the negotiations, steel market
conditions in the region have improved, and production for the
month of June is hitting a new all-time high - reducing leverage
and hurting the country's negotiating position," she said.
China may cancel as many as 20 iron ore import licenses held by
steel mills and trading companies, Reuters reported Tuesday, citing
industry sources.
The Commerce Ministry and the China Iron and Steel Association
are probing whether these license-holders were making speculative
buys, Reuters said.
The report said the cancelations are likely to come from private
companies, not state-owned enterprises.
Around 112 entities are licensed to import iron ore into China,
the report said.
-By Rachel Pannett, Ross Kelly and Aaron Back, Dow Jones
Newswires; 61-2-6208-0901; rachel.pannett@dowjones.com
(Enda Curran in Sydney contributed to this story)