Whatever message that China was trying to send by arresting four Rio Tinto executives last July, it appears to have backfired spectacularly.
Stern Hu, the Australian head of Rio Tinto’s iron ore team in Shanghai and three of his Chinese colleagues were arrested by authorities on suspicion of bribery.
The Chinese media accused Rio of systematically bribing the entire Chinese steel sector in order to get confidential information about China’s strategy for negotiating down the price of iron ore, which is, of course, the main raw material in steel.
Some journalists even suggested that the order to arrest Mr Hu may have come from the very top, such was China’s displeasure at being unable to force a bigger discount out of the mining companies.
I doubt that the arrest was signed by any official higher than city level, but at any rate, it not only soured last year’s price negotiations (which ended without any result) but are apparently souring this year’s negotiations too.
According to the FT, the big four mining companies are sidelining China from the price negotiations altogether for the contract beginning in April 2010. Instead, they are negotiating over price with Japan and intend to present the deal struck to Beijing on a "take it or leave it" basis.
They are even refusing to fly to China to speak with the Chinese side, preferring to meet in Singapore, or, as one executive told the paper: "As far as I am concerned, they could come over to Australia if they want to talk".
It seems that the continuing detention of Mr Hu, and the trial hanging over the four men, may not have hardened the willingness of the companies to do business with China (China does, after all, account for half the global market in iron ore) but it has left individual executives disgusted.
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