China/Rio spy row: It sounds like something from a John le Carré novel. Four employees of Rio Tinto, the Anglo-Australian miner, have been arrested in China for allegedly stealing state secrets. The development could have serious consequences for the Middle Kingdom.
At first glance, the arrests look like sour grapes. Rio last month withdrew from a planned $19.5 billion tie-up with Chinese metals firm Chinalco at the eleventh hour. That dealt a severe blow to corporate China’s pride. It was not the first time that a major Chinese company had failed to consummate a Western marriage. Moreover, Rio appears to have rubbed salt in an open wound: it reportedly squeezed a higher price to sell its iron ore to Chinese steelmakers than they initially wanted to pay.
The incident may be merely a matter of semantics. China’s definition of “state secrets” is broad. Unmentionables can be as mundane as state plans for land use, or as sinister as annual execution rates. Since China’s iron-ore negotiations take place with big, state-owned firms in smoky back rooms, it’s not inconceivable Rio staff could have heard something they shouldn’t.
But either way, foreign firms will probably take the arrests as confirmation of their suspicions that corporate China is indivisible from the state. Those concerns were already heightened following the blocking of Coca Cola’s purchase of Huiyuan fruit juice in March, and Chinalco’s eagerness for board seats at Rio.
IF the only consequence of this was diminished foreign investment in China, it wouldn’t be a disaster. China has some $2 trillion of foreign reserves to work its way through, after all. But the risk isn’t to investment – it’s to trade. Unpredictable, seemingly paranoid behaviour could make China look like another Russia to potential western partners.
Even small acts of cross-border aggression, like arresting a foreign citizen on spurious grounds, could throw fuel on protectionist bonfires. President Barack Obama is soon to consider a plan to impose US tariffs on Chinese tyres. India’s accusations of Chinese trade dumping are growing more numerous.
Chinese politicians perceive a simple equation: trade barriers mean fewer exports, mean higher unemployment, means social unrest. After riots in its north-western Xinjiang province, that’s an extra worry China can do without.
