By Rob Taylor
CANBERRA (Reuters) - Chinese security officials accused four detained staff of Anglo-Australian miner Rio Tinto of bribery on Friday as Australia sought to avert a diplomatic row centring on the massive iron ore trade.
The Shanghai office of China's State Security Bureau accused the three local Rio staff and senior Australian executive Stern Hu of bribing Chinese steelmakers during tense iron ore price negotiations this year, said the China Securities Journal.
"This seriously damaged China's economic security and interests," said the paper, published by the state-run Xinhua news agency. "The activities of Stern Hu and the others violated Chinese law as well as international business morality."
Chinese security authorities arrested the four on Sunday, alleging they were involved in stealing state secrets.
Australia's Prime Minister Kevin Rudd, a Mandarin-speaking China expert, and Foreign Minister Stephen Smith both said Canberra was treading warily after the shock detentions, which have cast a shadow on ties between the two countries.
"Such a serious matter is a matter which goes very much to the relationship between Australia and China, so we are treating this as a very, very sensitive and difficult issue," Smith told reporters in Perth, adding Hu had been well treated.
The arrests come as iron ore talks between the two sides miss a June 30 deadline, and after Rio Tinto ditched a $19.5 billion (12 billion pound) tie-up with Chinese state metals firm Chinalco last month.
Chinalco, Rio's major shareholder, said the arrests were unrelated to dealings between the two firms and expressed "mutual concern for the current situation with their staff."
Rudd, facing criticism at home for not intervening with China's President Hu Jintao on behalf of Hu and his employer, promised any representations needed to secure their release. Trade Minister Simon Crean left for China on Friday.
China's ambassador to Australia Liang Hong was summoned to the foreign ministry late on Thursday to discuss what local newspapers said was a fast-escalating crisis in relations.
Smith said China appeared to have a "broader" definition of what amounted to industrial espionage than many other countries.
"It's very hard for the Australian government to see the connection between what might be daily commercial and economic negotiations and national security issues," he said.
But Smith said the latest row would not derail negotiations with China on a free trade pact, underway since 2005.
The Australian dollar, knocked sharply lower on Thursday amid China export ructions, steadied on Friday, although the market was closely following developments. Rio shares traded up to 1.9 percent higher after a Standard & Poors rating upgrade.
RUDD CRUNCH
China is Australia's second-largest export customer behind Japan, buying A$36 billion (17 billion pounds) of mostly commodities in the 11 months ended May 2009. In 2008, more than half of China's imports from Australia were of iron ore.
Australia, along with Chile, is the largest recipient of Chinese investment this year, worth $3.9 billion, with Chinese companies anxious to lock-in access to resource exports.
Australian papers were critical of Rudd, pointing to a serious deterioration in Canberra's relationship with its second largest export market.
"What does the much touted Australia-China relationship add up to if Beijing treats Canberra with such conspicuous discourtesy and indifference?" wrote the Australian newspaper's foreign editor, Greg Sheridan.
Senator Steve Fielding, whose support Rudd's centre-left government needs in the upper house to pass crucial climate and budget laws, said Rudd had no idea how to look after Australians when China was involved.
"Here we have a Prime Minister who speaks Mandarin, tells everyone he has a relationship with China, yet he hasn't a clue what to do when it comes to the crunch," Fielding said.
(Additional reporting by Ben Blanchard and Alfred Cang in Shanghai, Fayen Wong in Perth; Editing by Sanjeev Miglani)
