Australian Foreign Minister Steven Smith stated today that Stern Hu, General Manager of Rio Tinto China, was detained on espionage charges earlier this week. Hu’s firm, Rio Tinto, is a major Australian supplier of iron ore (a necessary ingredient for making steel). The company is currently negotiating annual contracts with China that dictate pricing terms of the commodity for the next year.Rio Tinto was also the target of an investment bid by Chinalco, China’s state owned aluminum firm, as it seeks to acquire access to strategically important commodities. The deal fell apart last month due to backlash over the terms and fears in Australia that China would be taking a substantial stake in a strategic commodities firm.
More details will likely emerge over time, but the Australian Press hints that the arrest may be in connection with the unsuccessful investment bid. Such speculation is premature as no facts have been released. At the least, this case dampen dealmaking in strategic sectors as it will likely raise fear within the expat community in China that business executives may be personally responsible for “failed” dealings from China’s perspective. And at worse, China has unveiled a serious intimidation strategy as its firms expand globally.
