By Rob Taylor and Lucy Hornby
CANBERRA/BEIJING (Reuters) - China's President Hu Jintao personally endorsed an investigation into global miner Rio Tinto that led to the detention of four of its China-based staff, a newspaper said on Monday, citing Chinese government sources.
The investigation appears to be part of a realignment of how China managed its economy in the wake of the global financial crisis, with spy and security agencies promoted to top strategy-making bodies, the Sydney Morning Herald newspaper said. The detention a week ago of Anglo-Australian miner Rio Tinto's top iron ore salesman in China, Australian Stern Hu, and three of his Chinese subordinates has cast a shadow over Australia-China relations and unnerved the iron ore trade.
Rio Tinto is the world's second largest iron ore miner and was locked in intense price negotiations with China when Stern Hu and the three others were detained in Shanghai, accused of stealing state secrets and bribing Chinese steelmakers for information.
Australia's Foreign Minister Stephen Smith said on Sunday he was urging Chinese authorities to handle the case expeditiously, and to consider the wider risks for international business confidence.
"One of the issues for Chinese authorities to contemplate is the extent to which the circumstances of this case will cause the international business community to have any cause for concern," Smith said.
Chinese state-owned companies, which have been trying to portray themselves as independent, commercial entities as they roam the world buying up companies and sourcing raw materials, may now face suspicions they are fronting for the Chinese government, analysts say.
NO CHINALCO CONNECTION
The nine-member standing committee of China's Communist Party, led by President Hu, had taken more control over economic decisions at the expense of the State Council, led by Premier Wen Jiabao, the Herald said, quoting anonymous Chinese economic advisers.
The inquiry began before Rio Tinto broke off its $19.5 billion (12.1 billion) investment deal with Chinese metals firm Chinalco and instead formed an iron ore joint venture with rival BHP Billiton on June 5, the sources told the paper.
"This is certainly not revenge for the Chinalco deal not going through," the Herald quoted one Chinese government source as saying.
The collapse of the Chinalco deal was immediately followed by the establishment of a high-level group that would assess the political and economic risks of large overseas investment deals, the paper said.
Australian Prime Minister Kevin Rudd, who returned on Monday from a week-long overseas trip, is under pressure from the opposition to personally intervene in the case.
"Pick up the phone Mr. Rudd, pick up the phone Mr. Smith, speak to your Chinese counterparts and make it absolutely clear there must be procedural justice immediately," opposition frontbencher Greg Hunt told Sky News. "They are worried about the relationship, they are not worried about the Australian citizen." Australian authorities were pressing for details of the allegations against Hu, Smith said, adding that China had still not revealed to them any evidence supporting the detentions.
Chinese media reports say information from an internal meeting of the China Iron and Steel Association on the negotiations was leaked, and have reported the investigation has extended to several senior figures in the Chinese steel industry, including within the association itself.
A senior executive at Shougang, China's eighth-largest mill, has also been detained.
COMPUTERS REMOVED
Sources say some Rio Tinto computers were removed in the course of the investigation, which could potentially expose the company's negotiating strategy as well as contractual terms with the mills it supplies. Rio has not commented on the computers.
Foreign firms operating in China are already alert to the problem of Internet and phone communications being monitored for commercially sensitive information.
The matter has so far been confined to Rio Tinto, but rival Australian iron ore miner BHP Billiton and Brazil's Vale are watching events closely.
Australian consular officials met Hu in detention on Friday, and Canberra reported him to be in good health, but Smith said there was no timetable for whether or not charges would be laid.
Chinese law allows people to be held without charge and interrogated without access to legal counsel for some time, before being formally arrested.
(Writing by Bill Tarrant; Editing by Dean Yates)
