Reports: China probes 5 steelmakers in Rio case

[July 14, 2009]  BEIJING (AP) -- Executives of five Chinese steelmakers are being questioned in a widening espionage probe of four detained Rio Tinto Ltd. employees, news reports said Tuesday, as Australia pressed for details of the case.

The Rio employees, including an Australian, were detained July 5 amid iron ore price talks with Chinese steel mills. State media say they are accused of bribing Chinese steel company employees to obtain confidential information on China's negotiating position in the talks.

The chief iron ore negotiator for Baosteel Group, China's biggest steel producer, was questioned but allowed to return to work, the newspaper 21st Century Business Herald said. It gave no indication whether he was suspected of wrongdoing.

Executives of Anshan Iron & Steel Group, Laigang Group and Jigang Group also are under investigation, the China Daily newspaper reported. It gave no other details. An executive who oversees iron ore purchases for major steelmaker Shougang Group was detained last week, according to news reports.

Spokespeople for Shougang and Anshan said they had no information. Phone calls to Baosteel spokespeople were not answered.

Australia's government called in the acting Chinese ambassador Monday and pressed for details about the case against the detained Australian, Stern Hu, Foreign Minister Stephen Smith said. Australia has warned the affair could discourage foreign companies from doing business in China.

"We have again pressed Chinese officials yesterday to do two things: firstly to provide us with more detailed information about the circumstances relating to Mr Hu's detention, and secondly, to urge them that this is a matter that needs to be dealt with expeditiously," Smith told Australian Broadcasting Corp. radio.

The Chinese government has confirmed that Hu and his co-workers are accused of "stealing state secrets" but has given no details.

The accusations reflect the communist government's sensitivity about fields such as steel and energy that it deems strategic and its intense secrecy about a wide array of economic and industrial information.

Investigators say a computer seized from Rio's Shanghai office contained information on dozens of Chinese mills' production, sales, purchasing and inventory, the newspaper National Business Daily reported, citing unidentified sources. It cited people in the industry as saying such information is considered confidential and would be known to fewer than 10 of a company's managers.

Prime Minister Kevin Rudd, a Mandarin-speaking former diplomat, faces pressure from Australia's opposition to intervene with Chinese leaders. China is Australia's biggest trading partner.

A Chinese foreign ministry spokesman tried Tuesday to reassure foreign investors, saying the affair was an "individual judicial case" and would not affect business conditions.

"This is not to say that China is going to restrict foreign corporations," spokesman Qin Gang said. "China will continue to provide good conditions for foreign companies and their investment in China."

Rio, based in London and with executive offices in Melbourne, was acting as lead negotiator for global iron ore producers in talks with Chinese mills on the price for annual supply contracts. Rio is the world's third-largest mining company.

The two sides have yet to announce an agreement to replace supply contracts that expired June 30.

China, the world's biggest steel producer, has criticized iron ore suppliers for repeated price hikes and is pressing for reductions. The other major suppliers are Australia's BHP Billiton Ltd. and Brazil's Vale SA.

Hu, based in Shanghai, manages Rio's Chinese iron ore business. It is unclear what role he played in the price talks.

The Rio employees are accused of bribing Chinese steel company personnel to obtain summaries of the Chinese negotiators' meetings, according to Chinese news reports. The maximum penalty for an espionage conviction is life in prison.

"It's quite clear the focus here is on economic and commercial matters related to the iron ore industry, and that's what we need to get more information on," said Smith, the Australian foreign minister. "It's not about our wider economic and trade relationship."

Earlier news reports said employees of the group negotiating for Chinese mills, the China Iron & Steel Association, also are under investigation

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Australian diplomats visited Hu on Friday, and Smith said he appeared to be well and raised no health or welfare concerns. Diplomats will be allowed to see Hu again in one month.

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On the Net:

Rio Tinto Ltd.: http://www.riotinto.com/

[Associated Press; By JOE McDONALD]

Associated Press writers Tanalee Smith in Adelaide and Tini Tran in Beijing and researcher Bonnie Cao in Beijing contributed to this report.

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