Rio exec held in China is accused of spying

The Rio Tinto executive arrested in Shanghai is accused of espionage and stealing state secrets, Australia's Foreign Affairs Minister confirmed yesterday.

Stern Hu, who works for the mining giant's iron ore sales team, was taken into custody at the weekend with three other Rio staff, who are all Chinese nationals. None have yet been charged. Rio Tinto says the company is "not aware of any evidence that would support such an investigation".

The developments appear to scotch earlier speculation that the four were accused of manipulating the iron ore spot price to put pressure on Chinese efforts to push down year's contract prices. The row over iron ore has been rumbling for months after China's steel makers failed to accept the 33 per cent price reduction agreed with their Japanese counterparts in May. Typically, the first ore deal to be struck sets a global benchmark followed by all three of the big producers, Rio Tinto, Vale and BHP Billiton. But China is holding out for a bigger price reduction, even though last year's contracts are starting to expire.

Rio has also locked horns with China over the abandoned $19.5bn tie-up with Chinalco, the state-owned aluminium group. The proposed deal was dropped after Rio shareholders objected to its terms and pushed the group to use a rights issue to pay down its $40bn debt pile.

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