Things are going from bad to worse for Sino-Australian relations. Earlier on, I relayed my thoughts on the detention of Rio Tinto mining executives over spying charges. By coincidence [wink, wink], negotiations have stalled over the price Aussie miners will charge its official Chinese customers. The United States has not really forced this issue at Australia's behest lest China express wariness over holding over a trillion US dollars--most likely because it wants to stay in Beijing's good graces despite the evidently manufactured charges against the Rio employees. That is, the concern that China will detain American execs if they fall afoul of the politburo's whims in the future Hugo Chavez-style isn't so pressing now that it is evidently flat broke for all the world to see and reliant on debtor's manna courtesy of the good burghers of Beijing.In the meantime, China's Australian interlocutors have upped the stakes by suggesting in an official publication that Rio Tinto has ripped it off to the tune of $102 billion. Even by Chinese standards, that's a fairly huge amount considering that (a) Rio's annual revenue doesn't even come to $60 billion a year and (b) its entire iron ore sales over the past six years amount to $42.6B by analysts' estimates. Could every such transaction to China and everyone else have been a PRC rip-off? Even if I'm no math whiz, I doubt it. From the Sydney Morning Herald:
China accused Rio Tinto of stripping $123 billion [that's in Aussie dollars; the FT says it's about USD102B] from the country through a six-year program of commercial espionage, as it signalled it was broadening its spy blitz beyond the four mining employees detained in Shanghai. The allegations published on an official website - by far the most detailed and explosive by an official source - all but kill hopes that the Australian executive Stern Hu and his three Chinese colleagues will avoid convictions and lengthy jail terms...And here comes the nonsense arithmetic:
The Australian Government has received scant information about Mr Hu, as well as several blunt diplomatic rebuffs. And senior Rio managers have been humiliated in their attempts to see the former head of iron ore sales in China, who is being held in the Shanghai Detention Centre, and to learn the whereabouts of his three Chinese staff arrested at the same time. The Herald understands senior Rio executives were shadowed and intimidated during a recent visit to Shanghai.
The report, published on a website of China's National Administration for the Protection of State Secrets, alleges that Rio was involved in a six-year clandestine operation against China's steelworks. It accuses the Anglo-Australian miner of ''winning over and buying off, prising out intelligence … and gaining things by deceit''.
It says Rio's activities led China to pay $123 billion more for iron ore than it otherwise would have. ''That means China gave the employer of those economic spies more than $123 billion for free, which is about 10 per cent of Australia's GDP,'' the article says. The report does not explain how Rio is accused of thieving a sum which is far in excess of Rio's total iron ore sales to China over that period...For most of the past six years, Rio Tinto and BHP-Billiton have sold iron ore to Chinese mills at a steep discount to the prices received by domestic Chinese and other international producers.
The report also revived Cold War terms like ''traitors'' and ''espionage warfare'', signalling that the nation may be embarking on a campaign of intimidation against foreigners [how about referring to gweilo or "foreign devils" for good measure?] It says foreign businesses must come under stricter controls to stop them from obtaining commercial secrets. ''Our country has entered a peak period of commercial espionage warfare, and the threat to important economic intelligence and security of national economic activity increases by the day.''
The report urges strict controls of contact between foreign businesses and local officials, asserting that ''traitors'' were enriching themselves at China's expense. For three weeks the state-controlled media have been warning citizens to protect themselves and their country against what they allege is a foreign espionage blitz. There has also been vitriolic media commentary directed at Rio, including calls for China to boycott the company's products.
And here's the kicker: what China is doing to Rio Tinto makes no apparent economic sense as the current or spot price for iron ore soars domestically beyond that offered by Rio:
But it remains unclear how China would benefit economically from the extraordinary attack on Rio. The spot price for iron ore on the domestic Chinese market has soared since the Rio arrests five weeks ago. Last week it hit $US110 per tonne, which is about 20 per cent higher than the international benchmark price that Rio offered but China refused to accept.
OK, this is very interesting as it appears to any reasonable observer that the PRC's actions make no sense. The PRC is (a) offending an important trading partner whose cooperation is crucial in ensuring a continuous flow of raw materials to today's workshop to the world; (b) alarming foreign investors about the PRC's penchant for arbitrary detentions and demonizing foreign firms; and (c) getting a raw deal by spurning Rio's offer when prevailing prices are considerably higher due to this impasse. Other than venting its spleen, I cannot understand China's actions.
Then again, we live and learn. Perhaps China is laying down the gauntlet to the West. First Oz, then the crusaders. We know that Obama is wary of annoying Beijing by pressing China on this case as it's already held back from previous stated intentions. Still, it's possible to foresee increased Chinese belligerence as a capacity building exercise before taking on the biggest, baddest gweilo itself. Watch out, Sammy: your turn may be next to answer the question "So what are you gonna do about it, buddy?"
Naked power politics may not be good for international relations, but they do help illustrate where each country stands in relation to one another in a high stakes game of chicken. I guess it's time we found out who wears the pants in globalization circa 2009 as inquiring minds want to know.
UPDATE 1: The agitprop may have been a well-placed shot since retracted as government minders have disavowed any responsibility for the tirade according to the WSJ -
Then again, we live and learn. Perhaps China is laying down the gauntlet to the West. First Oz, then the crusaders. We know that Obama is wary of annoying Beijing by pressing China on this case as it's already held back from previous stated intentions. Still, it's possible to foresee increased Chinese belligerence as a capacity building exercise before taking on the biggest, baddest gweilo itself. Watch out, Sammy: your turn may be next to answer the question "So what are you gonna do about it, buddy?"
Naked power politics may not be good for international relations, but they do help illustrate where each country stands in relation to one another in a high stakes game of chicken. I guess it's time we found out who wears the pants in globalization circa 2009 as inquiring minds want to know.
UPDATE 1: The agitprop may have been a well-placed shot since retracted as government minders have disavowed any responsibility for the tirade according to the WSJ -
Chinese officials distanced the government from allegations on a state-backed Web site that employees of mining giant Rio Tinto PLC had used years of "deceit" to obtain state secrets that cost China's steel industry more than $100 billion -- spotlighting the murky and often confusing way China handles such secrecy cases.What likely happened was the message being conveyed satisfactorily. The facts remain unchanged: four Rio Tinto employees are being held involuntarily on dubious grounds. Moreover, the defamation campaign against Rio and other gweilo hasn't halted. Thus, matters remain very tense even if this is ultimately just for show. Ha-ha, isn't quality gulag time in China for sympathizers funny?
The allegations, published over the weekend, had quickly gained widespread attention, as they appeared to represent the government ratcheting up pressure over the case of four Rio Tinto employees, including an Australian citizen, who were detained last month by the Shanghai State Security Bureau on vague accusations of using bribery to obtain secrets that harmed China's national interests...
But on Monday an official with the propaganda department of the state secrets administration said it "didn't authorize anybody to release comments" on the case and that Mr. Jiang's essay didn't necessarily represent the view of the administration. "It is his own essay," the official said...The confusion highlights the difficulties of obtaining clear, authoritative accounts on sensitive issues in China, where huge swathes of information remain under wraps, and where the Internet and an increasingly rambunctious local media often add to the perplexity.
The China Secret Protect Online site (www.baomi.org) where Mr. Jiang's article appeared is run by a publishing house affiliated with the administration -- which has no public Web site of its own -- and publishes a magazine on state secrets work. But on Monday morning, Mr. Jiang's article no longer appeared on China Secret Protect Online, and the entire site later became inaccessible for much of the day, with a message suggesting it had been pulled down or blocked by the government. It then came back online hours later, before becoming inaccessible again. The reason for the disruption wasn't clear. Mr. Jiang and person who answered the phone at the contact number listed on the Web site both said they didn't know what happened.
UPDATE 2: By popular demand, the PRC has leveled charges against the Rio Tinto Four. Xinhua made a brief statement since elaborated on by the Australian press. The important takeaway is that the charges are not as strong as initially feared. Indeed, they may pave the way for Stern Hu to be merely deported. From BusinessDay:
Chinese prosecutors have finally approved the formal arrest of Rio Tinto iron
ore chief Stern Hu and three Chinese colleagues, laying charges of bribery and
obtaining commercial secrets, news agency Xinhua reported overnight.
The brief report did not say the four had been charged with stealing state secrets,
raising the prospect that authorities have significantly downgraded the case.
Xinjing Bao newspaper reported the case was being investigated under Article 219 of the Criminal Law code which is a commercial secrets provision rather than a state secrets provision. "That puts it in the business context rather than the realm of state seccrets," said Jerome Cohen, professor of law at New York University. "This would seem to be a lowering of the temperature somewhat..."
If the state secrets accusations against Rio Tinto's China iron ore team
have been dropped, this would open the way for a far more transparent judicial
process, lighter sentences and perhaps even the possibility of Mr Hu being
deported back to Australia.
