Rio - China: A wrong number — $102 billion — wiped $3.3 billion of value from Rio Tinto on Monday. The figure, purportedly the amount by which the Anglo-Australian miner has overcharged China for iron ore over six years, appeared on a little-known website linked to the Chinese State Secrets Bureau. The site, Baomi.org, disappeared on Monday, then reappeared with the Rio article removed. The episode may sound farcical, but it has the potential to damage China Inc nonetheless.
Rio’s profits from selling iron ore to China are a sensitive topic. Four of the miner’s employees were detained on suspicion of stealing state secrets last month. Baomi’s flawed analysis makes a damaging contribution to the issue. Rio’s accounts show $27 billion in sales of commodities to China from 2003 to the end of 2009. Add in rival BHP Billiton’s revenues and the total is $61 billion. The $102 billion figure looks to be rather the cash value of China’s total iron ore imports over six years — hardly the same as any “extra” profits made by the miners.
Wobbly maths are nothing new in Chinese official data. But at least the frequent discrepancies in GDP and unemployment can be attributed to difficulties in monitoring a country of 1.3 billion people. The likelihood is that this was simply an inaccurate article by one individual which does not reflect state thinking. But opinions spouted by publications with links to Beijing can be easily misconstrued as party diktat. The author of the Baomi article was an employee of the State Secrets Bureau and many observers assumed, wrongly, that he had some insider knowledge into the ongoing Rio probe. It is high time China gave more clarity over where “the state” starts and ends.
A lingering suspicion that the Baomi article wasn’t just the work of fringe writer may reinforce political caution towards China. US authorities are considering 55 per cent tariffs on Chinese tyre imports, amid accusations of dumping. On Monday, China’s Yanzhou Coal was reported to be in talks to buy Felix Resources for around $3 billion – a deal that requires approval from Felix’s regulators in Australia. China’s prospects of a favourable outcome in either situation will not have been boosted by the appearance of cooking up a case against Rio on flawed numbers.