Chinese court charges 'Rio four' with bribery and espionage

The mining giant has repeatedly denied the allegations against its staff

The Chinese authorities have formally charged the "Rio Tinto four" with accusations of bribery and commercial espionage.

The four employees of the mining giant's Shanghai business – including an Australian national, Stern Hu – have been held since July. Although the original, more serious, charges of stealing state secrets have been downgraded, they still face more than 20 years in prison if convicted.

China's state-run Xinhua news agency yesterday reported that the four are accused of requesting and accepting "huge" bribes from Chinese steel companies, as well as using "improper" means to obtain commercially sensitive information.

"Many times they used personal inducements and other improper means to obtain information from Chinese steel firms, causing serious consequences for the steel companies concerned," Xinhua said.

The four were formally arrested in August, and the case was handed over to Shanghai prosecutors last month, on completion of the police investigation. Although it has been reported in China that two employees from Chinese companies are also being held over the affair, it is not clear whether they will also face formal charges. The Xinhua news agency said that the case was accepted for trial by the Shanghai No 1 Intermediate Court but gave no date for the trial.

The Australian Department of Foreign Affairs and Trade yesterday claimed no official knowledge of the development yesterday. Rio Tinto also made no comment, although it has repeatedly denied any wrongdoing by its employees since the row first blew up. It has moved most of its China-based employees to its Singapore office.

The dispute is already threatening the stability of Sino-Australian relations, and the latest development comes just days after the start of negotiations over this year's benchmark iron ore prices.

Last year, the talks did not go smoothly. In May, Rio Tinto agreed to slash its iron ore prices by a third for Japan's steel mills, some distance from the 50 per cent cut being demanded by the Chinese. Usually, the trio of major iron ore producers – Vale, BHP Billiton and Rio – use the first nationally brokered deal to set a benchmark price for the year. But China, which consumes half the world's iron ore, refused to accept the deal.

Although no agreement was ever met with China last year, the country's steel mills nonetheless bought the majority of their iron ore at the provisional rate agreed with Japan. The Rio trial will add yet another dimension to the already contentious negotiations over this year's price arrangements.

The majority of commentators put the espionage allegations down to the collapse of the $19.5bn (£12.5bn) deal with China's state-owned aluminum group Chinalco, just a month before the four were first taken into custody.

Rio spent months trying to persuade its wary shareholders of the benefits of the Chinalco deal – which included a major equity stake and also slices of some of the company's key assets. But the resistance was strong, particularly in Australia.

One politician even ran a television advertising campaign calling for the deal to be blocked. By June, against the backdrop of a tentative recovery in the global financial markets, Rio backed out on the agreement. Instead it conducted a $15bn rights issue and a tie-up with BHP Billiton to help pay down its $40bn debts.

"The espionage charges are tit for tat for Rio's pulling out of Chinalco," Michael Rawlinson, at Librum Capital, said. "The long-term damage to Rio Tinto's relationship with China was done then, and this is one of the ways it is manifesting."

Rio Tinto will publish its full-year results tomorrow.

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