Rio Tinto, along with BHP Billiton, dominates Australian iron-ore exports to China, the world’s largest purchaser of iron ore. In November 2007, Chinese leaders were alarmed by an aborted BHP takeover bid for Rio. They feared that Australia would develop an iron ore monopoly capable of wielding significant pricing power over the Chinese steel industry.
In February 2009, with Rio struggling to pay debts incurred before commodity prices crashed during the Global Financial Crisis, the Aluminium Corporation of China (Chinalco), the largest Chinese state-owned aluminium company, made a US$19.5 billion offer to increase their minority stake in Rio. The proposal would have been the largest corporate investment in Australian and Chinese history. While there was considerable wariness within political and media circles, the Australian government did not appear to oppose the deal.
In early June 2009, following a turnaround in global commodity prices, the Rio board withdrew its support for the Chinalco deal and instead announced a US$15 billion rights issue and a new joint venture with BHP. The timing of this announcement meant that the Australian Foreign Investment Review Board (FIRB) never released its judgement on Chinalco’s bid. Chinalco executives were furious, and blamed the Australian political establishment for the failure of their bid. Reports claimed that the Chinese government was incensed, and other media outlets suggested that Rio was considering an A$120 billion merger with BHP.
On 5 July 2009, four Rio employees were detained in Shanghai on suspicion of spying and stealing state secrets. One was Stern Hu 胡士泰, Rio’s Chief Representative in Shanghai and a Tianjin native who became an Australian citizen in 1994. The other three were Hu’s Chinese deputies Wang Yong 王勇, Ge Minqiang 葛民强 and Liu Caikui 刘才魁.
The detentions were confirmed on 9 July and became front-page news in Australia and China, as well as attracting significant international media attention. Many Western commentators considered Hu’s detention to be a politically motivated response to the failed Rio-Chinalco deal. Rio denied its employees had done anything wrong. Great emphasis was placed on the fact that Hu and his deputies were in charge of Rio’s extremely sensitive negotiations with Chinese steelmakers over iron ore pricing, with Rio representing a consortium of iron ore producers including BHP and Vale.
The Australian government summoned the acting Chinese Ambassador to Australia, but the then prime minister Kevin Rudd resisted pressure to intervene in the case personally, and he strongly criticised the Australian media and Opposition for politicising the issue.
Chinese state media claimed that Hu had bribed executives at all sixteen steel mills involved in the iron-ore price negotiations in order to obtain confidential business information, which had been found on his personal computer, causing massive economic losses for China.
However, when the Rio four were formally arrested on 19 August, Chinese prosecutors downgraded their charges from stealing state secrets to the significantly less serious accusation of obtaining business secrets and engaging in commercial bribery. Charges of paying bribes were also modified merely to accepting bribes, meaning Rio was no longer implicated in sponsoring bribery.
In the months following Hu’s detention, tensions between Rio and China cooled considerably. On 15 March 2010, an internal Chinese investigation exonerated Rio of blame for the Chinalco bid failure, instead citing economic conditions and a negative Australian political and media atmosphere stirred by BHP. On 16 March, Rio and Chinalco announced a US$1.35 billion deal to co-develop the Simandou iron-ore project in Guinea.
On 29 March 2010, Hu was found guilty of accepting US$935,000 in bribes and stealing commercial secrets and sentenced to a ten-year prison term and RMB1 million fine. His three colleagues were handed prison sentences of between seven and fourteen years, and fines totalling RMB6.7 million. All had confessed to receiving bribes from small private steel mills in exchange for providing access to regular iron-ore supplies at cheaper prices than from state-run mills. The presiding judge Liu Xin stated their actions caused over RMB1 billion in economic losses for China to Rio’s benefit.
Neither Hu nor the Australian government challenged the verdict — Hu reportedly accepted his sentence after being promised by the Chinese authorities that a guilty plea would lead to immediate deportation. (However, Hu is still imprisoned in China). Both Rudd and then foreign minister Stephen Smith played down any impact of the case on Australia-China relations, but described the sentence as harsh and expressed concern that Australian consular officials were permitted only minimal contact with Hu and were denied access to the closed industrial espionage session of his trial — a violation of the Australia-China consular agreement. China’s Ministry of Foreign Affairs replied that Australia should respect the result and ‘stop making such irresponsible remarks’. Opposition foreign affairs spokesperson Julie Bishop said ‘Kevin Rudd has been exposed as having little or no influence with the Chinese leadership’.
Rio promptly fired all four convicted employees, citing ‘clear evidence’ of bribery occurring ‘wholly outside’ its systems, despite allegations that Rio executives had quashed internal suspicions about the company’s China operations and used information classified as ‘business secrets’ in court. It was also reported that, following Hu’s arrest, Rio paid US$5 million for the advisory services of former US secretary of state Henry Kissinger. He counselled Rio to build trust with the Chinese Communist Party by ‘avoiding criticism and showing unwavering commitment to the relationship’ and conveyed Rio’s undertakings to then vice-premier Wang Qishan 王岐山. Since then Rio has sponsored party events, procured Chinese equipment and established joint ventures with Chinese state-owned companies. It remains very profitable in China.
The Rudd, Gillard and Abbott administrations have all privately lobbied the Chinese government for Hu’s early release, but to no avail. It is alleged that Zhang Dejiang 张德江, now China’s third-ranked leader, is resistant because he was responsible for Hu’s arrest.
- Terry Macalister, ‘Rio’s Deal With Chinalco Collapses’, The Guardian, 5 June 2009.
- John Garnaut, ‘Chinalco, Rio Deal Collapses’, The Sydney Morning Herald, 5 June 2009.
- Dana Cimilluca, Shai Oster and Amy Or, ‘Rio Tinto Scuttles Its Deal With Chinalco’, The Wall Street Journal, 5 June 2009.
- Peter Drysdale, ‘Australia Needs to Get Its Act Together on China, And Fast’, East Asia Forum, 7 June 2009.
- Reuters, ‘China Reportedly Inks Iron Ore Deal; Rio Execs Detained’, Reuters, 8 July 2009.
- Brigid Glanville, ‘Rio Arrests: Joyce Raises Chinalco Deal Link’, ABC News, 8 July 2009.
- Robert Guy Matthews and Jeffrey Sparshott, ‘Rio Tinto says China has detained four workers’, The Wall Street Journal, 8 July 2009.
- Mathew Murphy and Chalpat Sonti, ‘Australian was Spying, Says China’, The Sydney Morning Herald, 9 July 2009.
- Bill Powell, ‘Aussie Mining Exec Arrested for Spying in China’, TIME, 9 July 2009.
- Jennifer Hewett, ‘Diplomatic State of Insecurity’, The Australian, 11 July 2009.
- Matt O’Sullivan, ‘Stern Hu “Thrown to the Wolves”’, The Sydney Morning Herald, 11 July 2009.
- John Garnaut and Michelle Grattan, ‘Bribe claim baseless: Rio’, The Sydney Morning Herald, 11 July 2009.
- AAP, ‘Detained Rio executive in good health: Smith’, The Sydney Morning Herald, 11 July 2009.
- David Barboza, ‘China broadens steel inquiry beyond Rio Tinto’, The New York Times, 13 July 2009.
- Rachel Pannett and Alex Wilson, ‘Australia Presses China Diplomat on Worker Held’, The Wall Street Journal, 14 July 2009.
- AAP, ‘Barnett says he’ll raise issue of Hu with Chinese officials’, WA Today, 14 July 2009.
- Zhang Qi and Tong Hao, ‘“Bribery is Widespread” in Rio Case’, China Daily, 15 July 2009.
- John Garnaut and Phillip Coorey, ‘Butt Out: China’s Hard Line to Rudd’, The Sydney Morning Herald, 16 July 2009.
- AAP, ‘Megaphone diplomacy won’t work on Hu: ex-leaders’, The Sydney Morning Herald, 17 July 2009.
- Peter Yuan Cai, ‘The China “Spygate” Affairs and China’s Steel Industry Chaos’, East Asia Forum, 19 July 2009.
- Greg Sheridan, ‘Don’t Kowtow to Beijing Bully’, The Australian, 23 July 2009.
- David Barboza, ‘Mining executive held by China is seen as an unlikely pawn’, The New York Times, 26 July 2009.
- Peter Foster, ‘Chinese Website Slams Rio Tinto “Espionage”’, The Telegraph, 10 August 2009.
- Bloomberg News, ‘Rio Tinto Accuser Says Article Was His Own Opinion’, Bloomberg, 10 August 2009.
- John Garnaut and Mathew Murphy, ‘Rio’s Hu Owned $17m Villa Say Media Reports’, The Sydney Morning Herald, 11 August 2009.
- Peter Hartcher, ‘China Shows Its Other, Angry Face’, The Sydney Morning Herald, 11 August 2009.
- John Garnaut, ‘Rio “Spy” Case: Stern Hu Officially Charged’, The Sydney Morning Herald, 12 August 2009.
- Iacob Koch-Weser, ‘The Rio Tinto Case in the Chinese Media’, Danwei, 13 August 2009.
- John Garnaut, ‘Trade Secrets: The Iron Ore Wars’, The Age, 22 August 2009.
- John Lee and Paul Kelly, ‘Stern Hu and Stern China: Why Beijing did it and what it means for Australia-China political relations’, Lecture at the Centre for Independent Studies, 25 August 2009.
- Paul Dibb and Geoffrey Barker, ‘The highly sensitive art of doing business in China’, East Asia Forum, 2 September 2009.
- AAP, ‘Market to Blame for Chinalco-Rio Tinto Failure – China’, Daily Telegraph, 15 March 2010.
- Stephen McDonell, ‘Government concerned by secret Hu trial’, ABC News, 18 March 2010.
- Emma Rodgers and Stephen McDonell, ‘World is watching Hu trial, Rudd warns’, ABC News, 18 March 2010.
- Stephen McDonell, ‘Hu to face trial as Rio boss visits China’, ABC News, 18 March 2010.
- Emma Rodgers, ‘Smith pushes for access to Hu trial’, ABC News, 19 March 2010.
- ABC, ‘China refuses to open Hu trial’, ABC News, 19 March 2010.
- Lyndal McFarland, ‘Rio Tinto, Chinalco Sign $1.5bn Simandou Iron Ore Agreement’, The Australian, 19 March 2010.
- AFP, ‘Rio Tinto bribery trial opens in Shanghai’, The Sydney Morning Herald, 22 March 2010.
- John Garnaut, ‘Canberra ‘gave up too easily’ on trial’, The Sydney Morning Herald, 22 March 2010.
- John Garnaut, ‘Australia has failed Hu in bid for open trial: expert’, The Sydney Morning Herald, 22 March 2010.
- John Garnaut, ‘Chinese security kept Rio boss under surveillance’, The Sydney Morning Herald, 22 March 2010.
- John Garnaut, ‘Revealed: life inside Stern Hu’s cell’, The Sydney Morning Herald, 22 March 2010.
- John Garnaut, ‘Stern justice’, The Sydney Morning Herald, 22 March 2010.
- Reuters, AFP and Bloomberg, ‘Stern Hu pleads guilty to bribery charge: lawyer’ The Sydney Morning Herald, 22 March 2010.
- Stephen McDonell, ‘Stern Hu trial begins in Shanghai’, ABC News, 22 March 2010.
- Stephen McDonell, ‘Stern Hu faces court over bribery claims’, ABC News, 22 March 2010.
- David Barboza, ‘Rio Tinto workers admit taking bribes in China’, The New York Times, 22 March 2010.
- Stephen McDonell, ‘Stern Hu admits taking bribes’, ABC News, 23 March 2010.
- Stanley Lubman, ‘Rio Tinto trial shines harsh spotlight on Chinese criminal justice’, The Wall Street Journal, 26 March 2010.
- John Garnaut, ‘Hu’s mystery lawyers end silence to say he is ‘OK’’, The Sydney Morning Herald, 27 March 2010,
- Vivienne Bath, ‘The Chinese Legal System and the Stern Hu Case’, East Asia Forum, 28 March 2010.
- Rio Tinto, ‘Shanghai employees – Update 8’, Media Release, 29 March 2010.
- Michael Sainsbury, ‘The world watches Stern Hu case as media coverage is gagged’, The Australian, 29 March 2010.
- Michael Sainsbury, ‘Rio Tinto’s Stern Hu Jailed For 10 Years’, The Australian, 29 March 2010.
- James Areddy and Bai Lin, ‘Court stenographer at Rio Tinto verdict’, The Wall Street Journal, 29 March 2010.
- Hugo Restall, ‘The Rio Tinto case and China’s rule of law’, The Wall Street Journal, 29 March 2010.
- Stephen McDonnell, ‘10 Years For Stern Hu’, ABC News, 30 March 2010.
- Michael Sainsbury, ‘Bribes ‘forced China to overpay for iron ore’’, The Australian, 30 March 2010.
- Sarah-Jane Tasker, ‘Rio reviews its systems after Stern Hu sentenced’, The Australian, 30 March 2010.
- James Areddy, ‘Rio Tinto China Employees Get Prison Terms’, The Wall Street Journal, 30 March 2010.
- Phillip Hudson and Stephen McMahon, ‘Australian Government Defends Handling of Stern Hu Case After Rio Tinto Executive Sentenced to 10 Years’ Jail in China’, Herald Sun, 30 March 2010.
- Mathew Murphy and Richard Willingham, ‘Rio ‘knew of dodgy dealing allegations’ months before’, The Sydney Morning Herald, 31 March 2010.
- Elizabeth Knight, ‘Hu deserted: a stain on the China trade’, The Sydney Morning Herald, 31 March 2010.
- John Garnaut, Kirsty Needham and Mat Murphy, ‘Rio Tinto calls in Kissinger to mend fences’, The Sydney Morning Herald, 31 March 2010.
- John Garnaut and Kirsty Needham, ‘Rio turns to Kissinger for help’, The Sydney Morning Herald, 31 March 2010.
- John Garnaut, ‘Chinese billionaire ‘to escape court’’, The Sydney Morning Herald, 31 March 2010.
- John Garnaut, ‘Billionaire who bribed Rio exec unlikely to be charged’, The Sydney Morning Herald, 31 March 2010.
- Tom Cowie, ‘Crikey Wrap: It’s Who You Know, Not Hu, You Know?’, Crikey, 31 March 2010.
- Jerome Cohen and Yu-Jie Chen, ‘China rips up rule book’, The Age, 1 April 2010.
- John Garnaut, ‘Revealed: Details of Extensive Rio Bribes’, The Sydney Morning Herald, 17 April 2010.
- John Garnaut, ‘Bribery rife in Rio Tinto China operation: court’, The Sydney Morning Herald, 17 April 2010.
- John Garnaut, ‘Gilded cage’, The Sydney Morning Herald, 17 April 2010.
- John Garnaut and Sanghee Liu, ‘Bribery pays: court reveals iron ore corruption’, The Sydney Morning Herald, 17 April 2010.
- Malcolm Maiden, ‘Just what is a Chinese commercial secret remains a secret’, The Sydney Morning Herald, 17 April 2010.
- Elizabeth Lynch, ‘The Rio Tinto trial in China – A miscalculation about rule of law?’, China Law & Policy, 19 April 2010.
- Elizabeth Lynch, ‘A Response to Rio Tinto – A different opinion from Australia’, China Law & Policy, 20 April 2010.
- Philip Dorling and Richard Baker, ‘How BHP Sank Rio Deal’, The Age, 11 December 2010.
- Sen Lam, ‘China law expert baffled by Australian stance on Stern Hu case’, ABC Radio, 18 January 2012.
- Rio Tinto Media Release, ‘Rio Tinto and Chinalco to Explore Technology’, 1 November 2013.
- John Garnaut, ‘Henry Kissinger paid $5m to steer Rio Tinto through Stern Hu debacle and consolidate China links’, The Sydney Morning Herald, 29 March 2015.
- John Garnaut, ‘Jailed Rio Tinto executive Stern Hu wants Tony Abbott’s help’, The Sydney Morning Herald, 5 April 2015.