Rio staff face China secrets charge

SHANGHAI (Reuters) - Four Rio Tinto executives faced charges in China on Tuesday of stealing commercial secrets after admitting to taking bribes, in a trial that has underscored the Chinese steel industry's growing need for iron ore.

Lawyers said Australian Stern Hu, head of the China iron ore business, and three Chinese employees of giant miner Rio Tinto could face jail terms of more than five years on the bribery charges.

Hu, his subordinates Liu Caikui and Ge Minqiang, and iron ore salesman Wang Yong were detained last July during sensitive annual price negotiations over iron ore, the main raw material for steel.

China boasts the world's largest steel industry and is consequently the top iron ore consumer, as well as Australia's biggest trading partner.

The four Rio executives pleaded guilty on Monday, the first day of the trial in Shanghai, to charges of taking bribes. However, their lawyers said the amounts taken were far lower than the sums prosecutors allege the four accepted from smaller steel mills and trading companies.

"The company did not know about the bribes," Zhai Jian, who is representing Ge Minqiang, said by phone. "The defendants said in the court that the company was not aware of what they did."

China has ordered the court closed for the commercial secrets portion of the trial. Australia's consul-general in Shanghai, Tom Connor, told reporters on Monday Hu was accused of taking bribes worth 1 million yuan (97,620 pounds) and $790,000.

FIGHTING FOR ORE

Court proceedings detailed in the National Business Daily on Tuesday linked at least some of the alleged bribes to China's medium-sized steel mills, whose scramble to secure iron ore frustrates efforts by the largest state-owned mills and the China Iron and Steel Association to cap term prices.

China's industry is split between the most powerful mills, which buy iron ore from Rio and other miners at relatively lower term prices, and the medium-sized mills which fight to secure ore at any price in order to stay large enough to stave off mergers with bigger, state-owned firms.

Industry sources said desperate mills would offer cash to ensure they got their term allocations whenever Rio reduced term supply or diverted cargoes to the pricier spot market.

The trial takes place at a time when foreign business sentiment is souring against China, where legal boundaries can be vague and courts closely tied to the state, creating pitfalls for businesses seeking profits in the world's third-biggest economy.

Google Inc. said on Monday it would redirect users of its mainland Chinese-language search engine to one based in Hong Kong, ending self-censorship demanded by Beijing.

Many U.S. businesses feel shut out in China because of discriminatory government policies and inconsistent legal treatment, according to an American Chamber of Commerce in China survey released on Monday.

Rio Tinto, which has moved to improve relations with China, its largest customer, had no official comment on Monday's guilty pleas. Until now it has maintained the four did nothing wrong.

Rio Chief Executive Tom Albanese told an audience in Beijing on Monday he did not want to jeopardise business ties with China. Rio's iron ore division chief, Sam Walsh, said in Perth on Tuesday China remains a preferred partner in future projects for the world No. 2 iron ore producer.

DIPLOMATS BARRED

Chinese officials are at pains to demonstrate that the Rio executives damaged the Chinese steel industry. In Geneva on Tuesday, an economic researcher for the Chinese government said the Rio case had cost the Chinese industry a "loss" of 700 billion yuan, a figure that was first used in a journal published by China's state secrets watchdog in August [ID:nLVE62MOVD].

Reuters later traced that figure to a different calculation by a university researcher who had calculated the rising cost of iron ore since 2003 but not losses to industry.

The allegations behind the charge of "infringing commercial secrets" are not public and Australian diplomats have been barred from observing that part of the trial.

"The content this afternoon may not be revealed to the press," lawyer Zhang Peihong told Reuters after the Tuesday session concluded.

Foreign reporters have been barred from the courtroom for any part of the trial.

It is not clear when sentences will be handed down in the trial, although the Shanghai authorities may want the case over quickly, before the city's showcase 2010 World Expo opens in May.

Lawyers for the three Chinese defendants said they also acknowledged taking bribes but maintained the amounts alleged by prosecutors were inflated. Wang Yong in particular, who is charged with the largest amount at 70 million yuan, is contending $9 million of that was not a bribe.

Australian consul Connor said after Tuesday's morning session that the four accused were given an opportunity to respond to the allegations personally "and make any points they wished to in response to what the prosecution has been saying."

(Additional reporting by Sonali Paul in MELBOURNE and David Stanway in BEIJING; Editing by Paul Tait)

($1=6.825 Yuan)