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Rio Tinto Espionage Case analyzed by Stratfor

China, Australia: The Espionage Case Continues

Stratfor Today » July 14, 2009 | 1725 GMT

Anshan Iron and Steel Group Corp. came under investigation on July 14, as the Chinese Ministry of State Security continues to round up people involved in the Rio Tinto espionage case. This is the first espionage case since China has passed amendments to its laws guarding state secrets at the March National People’s Congress, which expanded the scope of economic and commercial espionage. Although many questions still linger on how this will affect Sino-Australian government relations and whether this qualifies as an espionage case, a state agenda to reconsolidate central control over the Chinese economy is one of the main drivers behind Beijing’s crackdown on Rio Tinto.


On July 14, the Chinese press announced that Anshan Iron and Steel Group Corp. is the newest steelmaker to come under investigation in the Rio Tinto espionage case, joining the ranks with Baosteel and Shougang, among other smaller steel mills, recently implicated in the case. The Chinese Ministry of State Security continues to expand its inquiries and detentions of those suspected of involvement in the case in which Stern Hu, Rio Tinto’s Australian general manager for iron ore in China, was detained on July 5 for bribery and leaking state secrets.

Chinese reports released July 13 revealed that several Rio company computers, including Hu’s, were found to have individual steel mills’ economic activity information such as outputs, sales, purchasing plans, raw material stocks and schedules of production. Chinese authorities claimed this information as evidence of espionage; however, it is not clear that Hu obtained the information outside of normal business negotiations. Regardless, the timing of this case has some important implications for Sino-Australian relations — increasing tensions that were already on the rise — and, more importantly, it highlights Beijing’s attempts to consolidate economic control in the midst of the global financial crisis.

In March, the National People’s Congress passed amendments to its “Law Guarding State Secrets” to expand the scope of commercial and economic espionage. However, tensions between Rio Tinto and Chinese steel mills began prior to these amendments, the botched Chinalco-Rio deal (worth $19.5 billion) and the contentious iron ore negotiations that passed their deadline on June 30. The iron ore negotiations continue without a firm resolution. According to STRATFOR sources, Rio was pressuring Chinese mills over contract violations in excess of $5 billion at the beginning of the year, when the mills canceled shipments for iron ore in an alleged attempt to manipulate prices. Hu was likely involved in Rio’s pressure tactics on the Chinese steel mills.

The espionage case also shows that Beijing is going after corruption relating to foreign business transactions, to complement its domestic corruption drive. When the global financial crisis hit and China implemented a stimulus package to counter the slowdown, the central government intensified its anti-corruption activities to ensure that it could control the stimulus money and the economy in general. In this latest case, Chinese media reported that President Hu Jintao personally endorsed the Rio investigations, further suggesting that this case is of critical importance to Beijing and that the central government is behind the investigations.

This aligns with President Hu’s efforts to recentralize power, which have resulted in crackdowns on corrupt local officials who had amassed their own power, outside of Beijing’s control. For example, coastal officials are often more aligned with the economic interests of foreigners than with Beijing’s economic interests. In this atmosphere of increased security concerns, stemming from social instability related to the economic downturn, Beijing wants to strip the loyalty of its coastal officials and businesses from their overseas ties (such as Rio Tinto) and personal economic interests and shift that loyalty or at least allegiance back to Beijing. Therefore, picking such a high-profile target sends a clear message at home that no one is immune.

While Stern Hu and the other Chinese steel mill employees implicated in this crackdown may have been acting in accordance with normal business operations in China (for example, entertaining clients in the hopes of getting more information to grease business deals), these are not normal times. Beijing is using the momentum of the global financial crisis to further consolidate its control as it struggles to ensure social stability in China — to create order out of economic chaos.


July 15, 2009
 China orders Australian film-makers to drop Uighur documentary 

Anne Barrowclough in Sydney

The Chinese Government, already entangled in a row with Australia over the arrest of an Australian mining executive, has stirred more controversy by demanding that a film about a Chinese Uighur Muslim activist be dropped from the country's largest film festival.

The Cultural Attache at China's Consulate in Melbourne contacted the organisers of the Melbourne Film Festival, and insisted that they drop the documentary about Rebiya Kadeer, the exiled businesswoman and activist whom the Chinese Government blame for last week's riots in restive Xinjiang province.

Richard Moore, the executive director of the film festival told The Times that the attache, Chunmei Chen, demanded he justify his decision to include the film, 10 Conditions of Love, in the festival.

"We had a strident conversation," Mr Moore said. " Ms Chen urged me to withdraw the film from the festival and told me I had to justify my actions in programming it.

 "I told her that under no circumstances would I withdraw the film, that I had no reason to do so. I don't need to justiy my actions, unless it's in relation to our own sense of morals."

"It showed an extraordinary arrogance on her part and it was an ill advised call to make given the situation [with the arrest of Rio Tinto executive Stern Hu on charges of commercial espionage]."

The film tells the story of the relationship between Ms Kadeer, leader of the World Uigher Congress, and her activist husband Sidik Rouzi and explores the effect on her 11 children of her campaign for autonomy for China's Uigher population. Two of Ms Kadeer's sons have been jailed as a result of her actions.

Ms Kadeer is due to speak at the Melbourne Film Festival next month after being invited by the film's producer John Lewis.

"Ms Chen said the Chinese were also very unhappy that Rebiya is coming here as a guest," said Mr Moore. "She proceeded to list Rebiya's crimes, everything from evading taxes to being a terrorist. It was a real character assassination. To be honest, after a couple of minutes listening to this very detailed list of accusations I phased out.

"In the end I hung up. I would never normally do that but when you have someone who isn't listening to you and won't stop talking I just said 'I have nothing else to say, goodbye.' "

Mr Lewis said that he had not been contacted by the Chinese Consulate but said the festival organisers would keep a "close eye" on Ms Kadeer's security while she was in Melbourne. "We would not like her presence here to provoke an angry response from the Chinese community here," he said.

Calls from The Times to the China Consulate today went unanswered.

The death toll from the bloody riots in Urumqi, the capital of Xinjiang, now stands at 184, most of whom are Han Chinese. The riots began when police tried to break up a protest against fatal attacks on Uigher workers at a factory in south China. Members of Urumqi's Han population launched revenge atacks a few days later.

The incident threatens to exacerbate tensions between China and Australia, already high after the arrest of Mr Hu, Rio's iron ore executive, who has been detained for well over a week.

Kevin Rudd, the Australian Prime Minister, today warned Beijing that the world would be watching the way it handled Mr Hu's case.

"Australia of course has significant economic interests with its relationship with China, but I also remind our Chinese friends that China too has significant economic interests at stake in its relationship with Australia and with its other commercial partners around the world," Mr Rudd said. "A range of foreign governments and corporations will be watching this case with interest and will be watching it very closely, and they will be drawing their own conclusions as to how it is conducted."