As Rio Tinto trial ends, Australian firms eye China with caution

The trial of Stern Hu, an Australian citizen, and three other executives of the Rio Tinto mining company may affect the crucial trading relationship between Australia and China in subtle ways, but probably not materially, analysts say.

The trial of Mr. Hu and three Chinese executives – Ge Mingqiang, Liu Caikui, and Wang Yong – on bribery and commercial espionage charges concluded in Shanghai Wednesday, although verdicts will not be delivered for days or possibly weeks. At the start of the three-day case, held largely behind closed doors, all four pleaded guilty to taking bribes, although they disputed some of the sums involved. They face 5 to 15 years in prison.

The arrest last July of Hu, head of Rio Tinto’s Shanghai office, has strained relations between Australia and China and raised fears of a knock-on impact on trade. China is Australia’s biggest trading partner, and the former’s rapid industrialization has fueled demand for Australian minerals, particularly iron ore to feed the country’s steel mills. Chinese companies have also invested heavily in Australian mining ventures.

Relations will cool

Analysts believe the trading relationship is too important to both sides to jeopardize. But Ron Huisken, an East Asia expert at the Australian National University’s Strategic and Defense Studies Center, predicts that relations will cool somewhat.

“To the extent that the trial – and a legal system that seems to be subject to government management and direction and is not transparent – has left a bad taste in Australians’ mouths, I would expect it to have a lingering effect on the quality of the wider relationship,” he says.

“For example, the Foreign Investment Review Board [which has to approve all major investment in Australian companies] could be more disposed to saying 'no' down the line, to interpreting the rules more strictly. It [the Hu affair] may change the tenor of relations in ways which are essentially invisible. But it’s almost unimaginable that you would see the relationship put at genuine risk.”

Australian companies now more cautious

Dr. Huisken says that, given China’s need for Australian raw materials and Australia’s dependence on that key export market, the relationship is fairly evenly balanced.

Rio Tinto is giving the impression of business as usual. It announced, just last week, a $1.35 billion deal with Chinese aluminum giant Chinalco to develop an iron ore mine in West Africa. Sam Walsh, chairman of its China operation, said Wednesday that the company would respect the outcome of the Chinese legal system – and he added that Chinese demand for steel was likely to double by 2020.

Australian companies are now exercising more caution in China, however, particularly in relation to the payment of commissions, a practice said to be widespread in the Chinese business world, according to a report in Wednesday’s The Australian newspaper.

Some observers have expressed disappointment that Australian diplomats acquiesced to being barred from the commercial secrets section of the trial, just a few days after Prime Minister Kevin Rudd warned China that “the world will be watching” its conduct of the case. Donald Clark, an expert in Chinese law at the George Washington University Law School in Washington, told Australian media Wednesday there was no solid legal basis to exclude them under Chinese law.