Australia warns on Rio China case

By Mariko Oi Reporter, BBC Asia Business Report

Australia's trade relations with China could be damaged if the case of the detained Rio Tinto workers is not handled appropriately in the near future, the Australian trade minister has warned.

"They [the Chinese] need to be clearer in terms of what the allegations are," said Simon Crean.

"If those allegations warrant charges being laid through their system, then lay them. But this uncertainty and having to respond to speculation is not helpful."

On 5 July, police in Shanghai detained Australian national Stern Hu and three Chinese colleagues of Rio Tinto, an Anglo-Australian company.

They are accused of using bribery to obtain state secrets during this year's iron ore talks, damaging China's economic security.

Rio Tinto has denied the allegations and the four men have yet to be charged.

'Frank exchange'

Mr Crean met with his Chinese counterpart, Chen Deming, during the two-day Asia Pacific Economic Cooperation trade ministers' meeting being held in Singapore.

"So far, our relationship has not been damaged," said Mr Crean. "It certainly did not prevent any other important discussions regarding our bilateral ties when I met Chen Deming."

The four Rio workers were arrested at the start of the month

Australia is pursuing a free-trade agreement with China.

"In the true spirit of my friendship with him, we had a frank exchange about it," said Mr Crean.

"His point was that they were separate issues. I acknowledged his view, but [the detention] is also part of our commercial relationship, and it needs to be resolved."

Australian opposition politicians have complained that the arrest may be retaliation for the June collapse of Rio's proposed deal with Chinese state-owned firm Chinalco.

Rio scrapped a $19.5bn (£11.8bn) investment by Chinalco in favour of a tie-up with fellow Anglo-Australian miner BHP Billiton. Rio Tinto is now finalising a deal with BHP to merge their iron ore operations in Western Australia.

Mr Crean does not believe that the two incidents are related, but says he cannot be sure.

Asked if Australia would set a deadline for when this case should be dealt by, he says that would not be appropriate.

"We are dealing with their legal system. People who do business in other countries have to understand that their legal systems, in this case China, are different from the countries from which they come."

"But it is a reminder to people that this can happen."

Biggest trade partner

China is Australia's biggest trade partner, worth $53bn in 2008. Of this, $14bn came from iron ore exports, powered by Rio Tinto and BHP Billiton.

Rio Tinto is a major supplier of minerals to China

The world's fastest-growing economy, China consumes more than half the globally-traded iron ore. China needs Australia's resources and Australia needs Chinese demand.

Thanks to the robust Chinese demand for its natural resources, Australia has so far managed to avoid falling into a recession.

But tensions are running high.

On top of the detained Rio employees case, Australian miners have yet to agree with China on iron ore prices for this year.

The marathon negotiations missed their 30 June deadline.

China has balked at the 33% price reduction that Japanese and South Korean mills have agreed. It has been seeking a deeper 40 to 45% cut to take prices back to 2007 levels.

But its bargaining power has weakened because of its continuing high levels of steel production - which recently helped push iron ore prices up to eight month highs.

"Welcome to the market," says Mr Crean.

"China wanted to be recognised as a market economy. It has got to deal with the market accordingly."

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