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Truth, justice and the Chinese government’s way of business

Posted by Author on March 27, 2010

Rowan Callick, Asia-Pacific editor, The Australian, March 27, 2010 –

SINCE Australian Rio Tinto executive Stern Hu and his three Chinese colleagues were arrested last July, a weight of expectation has hung on their having their day in court to explain what on earth this is all about.

Courts are usually the places to clear up mysteries and bring murky deeds into the light, but the three-day trial this week in the Shanghai No 1 Intermediate People’s Court only added to the speculation that has engulfed Hu, Ge Minqiang, Liu Caikui and Wang Yong.

There is now almost no way in which the accused can convincingly be viewed as either wholly innocent or wholly guilty. They will be sentenced on Monday, perhaps to serve five or so years each, and so will be in no position to give their side of the story until most of the world has lost interest.

Since the four were arrested, the more fervent backers of Beijing, especially in the business community, have been nudging and winking hard: “no smoke without fire”, and so on. These people will have felt vindicated by the guilty pleas.

Those pleas could be part of a deal to cut sentences, since 98 per cent of people charged in China are convicted. But they add to the questions to which we still have no convincing answers.

First, why, in a country where bribery and the stealing of commercial secrets are ubiquitous, were these four singled out? The tensions over Rio’s eventual rejection of the move for 19 per cent of the company by Chinese state-owned giant Chinalco framed the context, but that is all we know for sure.

Second, how is it that the four were the recipients rather than the givers of the bribes? What services did they provide? Who was the victim? If it was Rio Tinto, should the company not have been asked whether it wished them to be prosecuted?

And what about those who dispensed the bribes? The implication is that the four were offered money to give precedence to iron ore shipments in a tight supply situation. But we do not really know.

And what about the commercial secrets they were charged with stealing? One pleaded guilty, apparently, and three denied the charge. But since this part of the trial was in camera, again, no one really knows.

There is a supposition that it is about the tactics involved in the annual benchmark negotiations for the ore price, but outside China a company that learns about such negotiations by talking to people who work for its competitors or clients is perceived as smart rather than criminal. And that structure is giving way to more flexible price arrangements now anyway.

Though it appears that prominent Shanghai lawyer Duan “Charles” Qihua was appointed to defend Hu, despite not taking on many criminal cases, he did not appear in court.

Andrew Forrest, the billionaire chief executive of Fortescue, Australia’s third biggest ore producer, says he does not think Australia-China relations will be damaged by the trial. He is doubtless thinking of the damage in China. But in Australia the trial has educated people about how China’s highly political legal system works, shocking some. It also has served as a warning to Chinese-born managers – whatever their nationality – of foreign enterprises in China, that their ultimate loyalty is to the People’s Republic. The ruling Communist Party certainly needs the economic growth that Australian resources help to ensure. But the reality behind this is that key decisions are ultimately made for political reasons and that sometimes this requires that commercial commonsense is overridden.

It’s also unclear why the Rudd government has responded the way it has. We may know more about this after Monday’s verdicts when the government promises a “considered statement”.

Canberra’s position so far has been to respect China’s legal process, but what does this mean?

Trade Minister Simon Crean has said that key questions about the trial cannot be answered until we know “what the full evidence presented is and the basis of the findings”. The chances of this happening are slim indeed.

Crean also has said he does not think the trial will have an influence on the broader economic relationship. He also has compared Chinese legal practice with Australia’s: “There are elements of our trials that involve commercial in confidence that can themselves become closed.”

Rio Tinto has moved to re-establish its relations with Chinalco by cutting a big new deal with it in Africa and may do the same for a big Mongolia deposit. Chief executive Tom Albanese was participating in a big government conference in Beijing as the trial opened. His few, carefully non-offensive words about the trial were excised from the conference record.

Did Rio’s ore marketing chief, now the China chief and fluent in Chinese, really fail to notice what was happening in the allegedly buccaneering Shanghai office?

And what was the real role of Du Shuanghua, founder of Rizhao Steel, which he was apparently forced to sell to state giant Shandong Steel after the arrests? In written evidence he said that he gave $US9 million ($9.87m ) to Wang for landing him a long-term supply contract with Rio which Wang denies. Why did Du testify? To save himself from a worse fate?

Chinese Premier Wen Jiabao told reporters at the recent annual session of the National People’s Congress that – despite Google’s pullout from China and the halting of high-profile foreign efforts to take over Chinese firms – China welcomed foreign investors who do business in line with Chinese laws. The Hu case serves to remind everyone how these laws work and who owns them.

A credible answer to the core underlying questions is provided by Beijing-based scholar Russell Leigh Moses in a Wall Street Journal blog: “Privatisation has come to be seen by many in the party as fracturing political power. Foreign firms are being neglected by much of the central government but they still have their fans in various regions who see these companies as providing investment, employment and helping ensure social stability.

“For now, the Recentralisers have beaten the Decentralisers. Showing Google the door and Rio Tinto the court entrance are the uglier signs of ongoing skirmishing between competing visions of how best to manage national economic affairs. It is surprising that many foreign firms forgot that China is a place of many minefields.”

The Australian

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