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What China Wants, China Gets ?

The recent arrest of four employees of the Shanghai office of the Anglo-Australian mining giant Rio Tinto, has raised concerns among foreign companies working in China. One of those arrested, Stern Hu, is an Australian citizen. How safe are foreigners working in China when their company gets into a dispute or does not succumb to pressure from a Chinese state-owned company, is the question.

Rio Tinto is the third largest mining company in the world, with its parent company registered in UK. But its iron ore export business is located in Australia, making it basically an Australian Company. It sells billions of dollars of iron ore to China every year.

The problem started early this year, when the energy and raw material hungry China’s state-owned company, CHINALCO, made a US $ 19.5 billion bid to take over the controlling share of Rio Tinto. The deal fell through when Billiton of UK entered the process, leading to a bitter and acrimonious attack by the Chinese on Rio Tinto.

The next step was on price negotiation of Rio Tinto iron ore. With the drop in the price of iron ore because of global economic slowdown, the China Iron and Steel Association, the government’s umbrella body, demanded a 45 per cent discount from last year’s bench mark price. Rio Tinto stuck to 33 per cent discount, as per the international trend. This obviously upset the Chinese and they decided in their favourite term to “teach a lesson” to Rio Tinto. It is alleged that Chinese President Hu Jintao personally endorsed the investigations into the activities of the company’s Shanghai personnel.

After an initial period of silence, the Chinese responded to the Australian representation and concern, declaring that the four Rio Tinto employees, including Stern Hu, were guilty of stealing state secrets. The official China Daily finally wrote that the arrested had bribed senior officials of several Chinese steel companies for inside information that would give them undue advantage in negotiations.

Anything and everything in China could be state secret, from the health of a leader to unauthorised disclosure of a disease or epidemic in the country. Till some years ago, an ordinary Chinese patient did not know the kind of disease he was suffering from. All diseases, including the common flu, were given numbers. One of the charges against late Party Chief Zhao Ziyang in the murky politics of the 1989 students’ protest was that he had disclosed the health condition of Deng Xiaoping to visiting Soviet President Gorbachev. According to the Chinese Law on Secrets, a person whether a Chinese national or a foreigner, accused or charged with stealing state secrets has no defence. The National People’s Congress (NPC) Standing Committee, China’s Parliament, is currently reviewing the law. A small report in the China Daily had briefly criticised the existent law. But everything went silent after that.

Apparently, the Chinese had hoped that Australia’s openly pro-China Prime Minister, Kevin Rudd and his other pro-China colleagues in his Cabinet, would intercede on their behalf. But strong domestic pressure and indignation finally forced Rudd to take a position which could be termed mild under the circumstances. He stated that Chinese action and position had cast the affair as a matter of wider international concern. But he did send a message – that others doing business in China would be watching the case closely.

US Commerce Secretary Gary Locke, who was in China last week, said multinational companies in China “need to have assurances and confidence” that their workers would be treated fairly, and promised to take up the matter with Chinese Premier Wen Jiabao. This, he did as promised. Meanwhile, Rio Tinto has started pulling out their foreign staff from China, though business has not been stopped.

The Chinese Foreign Ministry spokesman, however, arrogantly dismissed the Australian protests as “noise”, and stated that the case would be dealt with as per Chinese law. Almost coincidentally, US Deputy Assistant Secretary of State for Asia, Scott Marciel, deposed (July 16) to the Senate, that Beijing had told US and other foreign oil companies to halt work with their Vietnamese partners in the South China Sea or face consequences inside China. This is another example of China’s arm-twisting in commercial dealings.

The Spratly Islands in the South China Sea comprise more than five hundred reefs and shoals and are variously claimed in parts by Vietnam, the Philippines, Malaysia, Brunei and Taiwan. China claims the whole of the strategic gas and oil rich area. It has established a military post with anti-aircraft guns on Mischief Reef, the largest of the islets in the Spratly group. Lately, friction has gone up sharply between China and the other claimants. This is just one example of recent Chinese assertiveness, if not belligerence, to establish the syndrome “what China wants, China gets”.

Both these developments are beginning to define the characteristics of a new, powerful China with a $ 2.15 trillion foreign exchange reserve, and a rapidly growing military capable of overwhelming Asia.

The Rio Tinto case is being watched very closely the world over. China has got itself into a position from which it can hardly exit amicably and save its face too. Even if the affair is resolved between Australia and China, as the Rudd government would want to without further acrimony, the question of Chinese government behaviour on behalf of a state-owned company will definitely be page-marked by foreign investors in China. There have been numerous cases of intimidation of smaller business in China in the past. But this is a very big case, and a special case of rising tensions in the country involving raw material and energy security.

The Spratly Islands case has also broader ramification as it involves disputed territory, especially territory claimed by China as almost non-negotiable. There is the issue of the Senkaku (Diaoyu in Chinese) Islands with Japan in the East China Sea. The island is under Japanese control but friction between the two sides over it is quite frequent. Japan’s Defence White Paper 2009, released (July 18) recently, underscored concerns over the intentions behind China’s massive military power growth.

The territorial issue also concerns India with a still unresolved boundary problem. China’s position on India’s Arunachal Pradesh is becoming combative, with Beijing trying to block Asian Development Bank (ADB) assistance for development schemes in this Indian state. China claims it is a disputed territory between the two countries, but India’s position has consistently been unambiguous. It is, and always has been, India’s sovereign territory, and the ADB went along with India’s position.

With the new found Chinese assertiveness, all such issues can blow up. This is an unhappy situation. Chinese Foreign Minister Yang Jiechi’s friendly words, as during the farewell of Indian Ambassador to Beijing, Ms. Nirupama Rao recently, is neither matched by its words in other areas or deeds on the ground.

Is there some factional infighting in China’s political hierarchy? And in this, are the two factions trying to prove which one is more nationalistic? If this is true, the situation around could be dangerous.

(The writer, Mr Bhaskar Roy, is an eminent China analyst with long experience, based in New Delhi).

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