BHP Billiton Ltd. (BHP) said Tuesday it hasn't been approached
by China about any potential investigation into trading practices
at its iron ore division, leaving rival Anglo-Australian miner Rio
Tinto Ltd. (RTP.AU) in the spotlight.
"BHP Billiton is unaware of any investigation," a BHP
spokeswoman told Dow Jones Newswires.
A senior executive from Anshan Iron & Steel Group also said
no officials from the company are involved in the investigation
into the alleged theft of state secrets by Rio employees.
BHP's comments come as Australia's center-left Labor government
continues to grapple with how to deal with China's detention since
July 5 of four Rio Tinto executives, including the head of Rio's
Chinese iron ore division and an Australian citizen, Stern Hu, on
accusations they bribed steelmakers to obtain state secrets.
Some analysts and market watchers had speculated that BHP
Billiton could also be under investigation by Chinese authorities,
given the similarities in its iron ore negotiating strategy.
The Australian government continued Tuesday to resist calls from
opposition lawmakers to intervene at a higher level in the case,
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.
The Australian government will seek to resolve the matter in an
"appropriate way", Swan said, taking into account both the
interests of Hu, and the interests of the ongoing relationship
between China and Australia.
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.
The Australian government has been under sustained fire from
opposition lawmakers for its perceived lack of action on the Hu
case. They argue that Australian Prime Minister Kevin Rudd, a
Mandarin-speaking former diplomat to China, should be using his
influence to fast-track Hu's release.
But Ross Garnaut, a former Australian ambassador to China and an
academic at the Australian National University, defended the
Australian government's approach Tuesday, noting that in his
experience, situations such as these are best resolved away from
the public eye.
"My experience as ambassador in China was that difficult cases
of this kind...are best handled away from the megaphones. That
helps the Chinese consideration of things and it helps the
effectiveness of Australian representations," Garnaut told
reporters.
Garnaut said it is "too early to tell" whether the Rio employee
detentions will have repercussions for Australia's economic
relationship with China, or for the way foreign firms do business
in China.
"I think it's too early. A lot more facts need to be known
before you have a basis for evaluation," he said.
Peter Drysdale, an international relations expert from the
Australian National University, said the Rio arrests highlight
continued uncertainty about the way in which the one-party Chinese
political process interacts with market-based economies.
But the episode shouldn't have any implications for Australia's
future consideration of investment by Chinese state-owned
entities.
"The bottom line is that none of this affects the argument for a
positive approach to foreign investment by state-owned entities in
Australia," Drysdale said. "Those enterprises are appropriately
managed by an Australian regulatory process (Australia's Foreign
Investment Review Board), which is robust and well-placed."
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 Enda Curran, Dow Jones
Newswires;
61-2-6208-0901; rachel.pannett@dowjones.com