China accuses Rio staff of bribery

Chinese security officials accused four detained staff of Anglo-Australian miner Rio Tinto Ltd of bribery on Friday as Australia sought to avert a diplomatic row centred on the massive iron ore trade.

The Shanghai office of China's State Security Bureau accused the three local Rio staff and senior Australian executive Stern Hu of bribing Chinese steelmakers during tense iron ore price negotiations this year, the China Securities Journal said.

"This seriously damaged China's economic security and interests," said the paper, which is published by the state-run Xinhua news agency. "The activities of Stern Hu and the others violated Chinese law as well as international business morality."

The shock detentions have cast a shadow on relations between Beijing and Canberra, whose economiies have been welded together in recent years by China's huge demand for Australian metals and minerals.

China's ambassador to Australia was summoned to the foreign ministry late on Thursday to discuss what local newspapers said was a fast-escalating crisis.

A Rio spokesman expressed surprise at the turn of events, saying the group was "not aware of any evidence that would support these allegations".

Chinese security authorities arrested the four on Sunday, alleging they were involved in stealing state secrets.

Chinese law is vague on what that constitutes, but economic data such as gold holdings and currency movements have at different times been deemed secret, so it would not be a stretch for information about a lucrative state-owned industry such as China's steel business to be included.

Australian Foreign Minister Stephen Smith told reporters in Perth that China appeared to have a "broader" definition of what amounted to industrial espionage than many other countries.

"It's very hard for the Australian government to see the connection between what might be daily commercial and economic negotiations and national security issues," he said.

Smith said Canberra was treading warily on the crisis.

"Such a serious matter is a matter which goes very much to the relationship between Australia and China, so we are treating this as a very, very sensitive and difficult issue," he said, adding that Hu had been well treated.

He said the latest row would not derail negotiations with China on a free trade pact, underway since 2005.

The arrests came after the two sides missed a June 30 deadline for iron ore talks and Rio's ditching of a $19.5 billion tie-up with Chinese state metals firm Chinalco last month.

Chinalco, Rio's major shareholder, said the arrests were unrelated to dealings between the two firms and expressed "mutual concern for the current situation with their staff".

Australian Prime Minister Kevin Rudd, a Mandarin-speaking China expert, promised all steps needed to secure the release of the executives and his trade minister, Simon Crean, left for China on Friday.

But he faced criticism at home for not intervening with Chinese President Hu Jintao on behalf of Hu and his employer.

"Mr Stern Hu is one of us, he is a fellow Australian. He has been denied basic human rights in China, and the Australian Prime Minister Mr Rudd should take this matter up directly and personally with the Chinese government," conservative opposition leader Malcolm Turnbull said.

"It is not acceptable for an Australian citizen to be seized by the secret police and held without access to a lawyer, to his family, to his employers or to consular officials for more than five days."

The Australian dollar (AUD=), knocked sharply lower on Thursday amid China export ructions, steadied on Friday, although the market was closely following developments. Rio shares traded up to 1.9 percent higher after a Standard & Poors rating upgrade.

China is Australia's second-largest export customer behind Japan, buying A$36 billion ($28 billion) of mostly commodities in the 11 months ended May 2009. In 2008, more than half of China's imports from Australia were of iron ore.

Australia, along with Chile, is the largest recipient of Chinese investment this year, worth $3.9 billion, with Chinese companies anxious to lock-in access to resource exports.