The Rio Tinto case in the Chinese media

Rio Tinto’s rats being led away (cartoon from CNR)

Iacob Koch-Weser, a graduate student in Regional Studies, East Asia, at Harvard University, has previously written about The Wall Street crisis in the Chinese media, Hired guns in Shaanxi’s ad industry, and National Geographic in Chinese.

Over a month ago, four employees of Rio Tinto, Australia’s largest producer of iron ore, were detained by the Chinese government in Shanghai. They were accused of using bribery to obtain sensitive data from China’s steel producers, crimes tantamount to commercial espionage under the vague statutes of the Law on Guarding State Secrets. On August 12, the detainees were formally charged: they could face up to seven years in prison, along with heavy fines. Even at this stage, Australian national Stern Hu still has no access to legal counsel.

The filing of formal charges was long overdue. Outside the halls of justice, the case unleashed a wave of controversy already soon after the arrests took place in early July. Various Western media, most notably The Economist, have speculated that the arrests were a political act of retaliation after recent conflicts between China and Rio Tinto: in early June, Rio Tinto refused to sell 18% of its shares to China Aluminum Corp.; and in late June, the company failed to reach an agreement with Chinese importers over annual steel prices. The link between these commercial disputes and the arrests has also been made by several Australian politicians. In the United States, Commerce Secretary Gary Locke raised the stakes by asserting that the case is “of great concern to US investors and multinational companies from around the world that have projects [in China]”. The Economist has contended that it is part of a series of legal actions being taken by the Chinese government against foreign companies, including a Citigroup subsidiary in Shenzhen and property developers in Tianjin.

The Chinese media has been no less eager to cover the Rio Tinto case. Yet one might assume that in matters of national security, it would simply act as a mouthpiece of the Chinese government. During the riots in Tibet and Xinjiang, this was by and large the case; though the Rio Tinto case is commercial in nature, it falls under the same rubric. Indeed, many state-run media have affirmed the legitimacy of the government’s actions: Southern Metropolis Daily (南方都市报), for instance, alleged that computers seized from Rio Tinto’s Shanghai office showed the existence of confidential government data; and China Daily quoted an anonymous “industry insider” to suggest that Rio had bribed managers at all 16 of China’s largest steel companies; and just this week, a state-secrets watchdog alleged that Rio Tinto extracted charges of over $100 billion from China over the past six years (although subsequent reports distanced the organization from the independent writer, who is not connected to the case).

However, a closer look reveals that the Chinese media has produced more diversified commentary on the case. Through the website of the state-run Xinhua News Agency, one finds a vast quantity of articles from different journals that discuss its legal, commercial, and political implications. While there is criticism of Rio Tinto and the suspects, there is also a great deal of introspection about the problems of China’s legal system and the structural inadequacies of the steel import sector. On a broader level, the case has fueled debate about Sino-Australian relations and Western media depictions of China. These debates illustrate that Chinese attitudes toward the West continue to sway ambivalently between hardline and liberal opinion.

Following on the heels of the Green Dam scandal, the Hubei pedicurist murder case, and the Xinjiang riots, the Rio Tinto case offers a further opportunity to scrutinize China’s media in the post-Olympic era.

A well-kept secret?

Although the Rio Tinto case involves commerce and foreign policy, it is first and foremost a legal issue. By making the arrests, the Chinese government has unwittingly exposed faults in the country’s legal system. This has had the positive effect of encouraging debate about legislation in a media industry normally fixated on the economy.

At first glance, the debate does not seem to render enlightened opinions. Regarding the legal grounding of the Rio Tinto case, most reports regurgitate government statements that there is “concrete evidence” and that a “comprehensive legal procedure” is necessary before any specific allegations can be made. In an op-ed widely circulated in China, the overseas Chinese newspaper The China Press (侨报) staunchly defends the arrests. (This is interesting, since the paper’s location outside China gives it more credibility; statements critical of the Chinese government were actually censored before the article was published on the Mainland.) It acknowledges that the case occurred soon after the botched Chinalco deal and during the impasse in steel negotiations, yet it maintains that linking these events is “conjecture”, and “conjecture cannot become a legal basis for judging a case”. It notes that the US has recently arrested an engineer of Chinese descent on account of stealing commercial secrets — the West never makes a big fuss about those arrests, so why should China be treated any differently?

The reality, The China Press argues, is that the case is being manipulated by Australia’s political parties ahead of next year’s election. The opposition party, it says, has criticized Prime Minister Rudd for ingratiating himself with China, prompting Rudd to play tough in order to ward off criticism. This opinion is not so far-fetched: an article in The Australian makes a similar point. The Chinese media is eager to show that Australia’s political posturing isn’t working: in a survey republished by Xinhua News Agency, only 26% of Australians think their government should interfere when Australian companies are treated unjustly overseas.

However, other voices in the media have been more inquisitive. Zhang Jie, a financial columnist for Phoenix Television, believes that the case must be administered according to “Western standards of just and transparent legal procedure” in order to achieve international credibility. But he worries that China’s legal system is too corrupt: earlier this year, the vice-head of the High Court was dismissed on corruption charges. Zhang also addresses the tricky issue of how to prosecute commercial spies in a Chinese court: he suggests a two-step approach, starting with a publicly prosecuted commercial trial that fines Rio Tinto for corporate malpractice, followed by a closed-door prosecution of the espionage suspects. Although Zhang doesn’t exactly disapprove of government actions, he at least evinces an awareness of the technical problems at hand.

Zhu Sibei of Yangcheng Evening News (羊城晚报), a popular daily in Guangdong Province, emphasizes the distinction between what is “secret” and what is “public”. But he identifies the problem less in legal procedure than in legislation. Because the Law on Guarding State Secrets does not clearly classify documents as “secret” or “public”, he argues, the government can “determine what is secret without explaining what is secret”. The deeper problem is China’s acquiescence of “totalist government” (全能主义政府) — in modern democratic countries, the provision of public and transparent information is a prerequisite of government, but in China, it is still regarded as a privilege. Nonetheless, Zhu finds that reform of the Law on Guarding State Secrets is possible: a recent revision removed death toll figures for victims of natural disasters from the state secrets category. It is noteworthy that Zhu’s arguments resonate with those of Phelim Kline of the Financial Times, who has called for a revision of the Law in order to avoid political meddling and unfair trials behind closed doors.

Other voices in the Chinese media agree that a revision of the Law on Guarding State Secrets is not a distant prospect. China Business Journal (中国经营报) argues that, because the Rio Tinto case has coincided with a review of the Law, it may serve as a catalyst for more drastic revision. World Business Report (世界商业报道) offers a list of suggestions for how to reform commercial espionage laws. It argues that China should reference the United States’ Spy Act of 1996, which sets out specific statutes that facilitate good behavior among foreign governments and organizations operating there. China should in addition promulgate a Law Against Commercial Bribery to counteract the leakage of information by domestic companies. Related legislation could prevent officials in ministries with foreign activities to do “moonlighting” for foreign companies. On the institutional side, the government could set up an Economic Security Monitoring Bureau to monitor investment and M&A activity in sectors vital to national security.

We are our own worst enemies

What the latter reform proposals illustrate is that the Rio Tinto case is as much about foreign “spies” as it is about domestic “rats”. The case has involved the arrests of senior figures at domestic steel firms, prompting the media to question why so many in the industry were willing to leak sensitive information. The People’s Daily-affiliated International Finance News (国际金融报) asserts that much information is leaked in day-to-day relations with foreign firms, especially when Chinese companies employ foreign investment banks and accountancy firms for consulting services. World Business Report notes that industrialized countries have a series of regulations in place to prevent leaks, whereas China is “completely chaotic”. CCTV presenter Bai Yansong opines that China could learn a thing or two from Japanese companies, where there are strict rules and procedures to prevent employees from divulging sensitive information, and those who are found guilty have a difficult time ever finding a job again. Given China’s general lack of enthusiasm for things Japanese, Bai’s comments are refreshing.

World Business Report further points out to the problematic involvement of the government in information leakage. Multinationals regularly employ high-level government officials to facilitate their operations in China. Most recently, Guo Jingyi, the Head of the Legal Department in the Commerce Ministry, was accused of helping foreign investors get the “green light” in M&A deals with domestic companies. International Finance News sees the problem in the state’s excessive involvement in the economy, which tempts foreign companies to bribe officials.

Besides the problem of leaked information, the media has also cast its eye on the unsuccessful negotiations between Rio Tinto and Chinese steel importers. As The New York Times has pointed out, the China Iron and Steel Association has been unable to achieve its target price cut of 40-50%, which is considerably lower than the 33% Japan and Korea have already agreed on. Chinese negotiators have made the mistake of demanding lower prices just as prices on the spot market were rising. The delay in setting annual prices has led more producers to buy from the spot market at far higher prices.

International Finance News offers various reasons for why the price negotiations turned sour. It argues that the government’s excessive influence on the China Iron and Steel Association — the official price negotiator — led price negotiations to take on the air of a government mission, thus leaving little flexibility for negotiation. It also points to the lack of unity among steel importers: although the Association has repeatedly asked mills not to buy from Rio or other producers during negotiations, they have done so anyway. Commerce industry spokesman Yao Jian tells International Finance News that China lags behind Japan, the EU, and the United States, where industry associations negotiate very effectively.

Zhang Jie of Phoenix Television views the disunity of importers during price negotiations as a sign of deeper imbalances in the steel import sector. He notes the lack of competition in a system where 112 qualified importers sell iron ore to thousands of domestic producers, leading them to register huge profits by practicing arbitrage and accepting bribes from small producers. Importers almost never lose out, because as opposed to the steel miners upstream and the producers downstream, they have virtually zero costs and are backed by bank guarantees. Fu Guangyun of International Finance News asks the provocative question: “Aren’t Chinese steel makers the real adversary in these negotiations?”

While the media is willing to criticize Chinese companies, it does heap plenty of blame on Rio Tinto as well. Fu Guangyun makes the cynical remark that what seems to be China’s strength — its purchase of 50% of global steel imports — is in fact detrimental, because it allows Rio Tinto to manipulate China’s steel industry in an opportunist fashion:

…Because of Rio Tinto’s massive $40 bn debt, it had no choice [earlier this year] but to agree to a bailout plan with Chinalco…But in the steel negotiations, Rio stated time and again that the Chinese economy would recover in the second half of the year, and that the steel price would go up due to massive demand; based on this excuse, it was able to refuse China’s demand to cut the price by 40% to 50%. Evidently, China’s advantage of scale has become a disadvantage of scale.

Zhang Jie of Phoenix Television reckons that Rio Tinto has actually registered a profit during the recession despite plummeting steel prices. While the price of steel for long-term contracts with Japan and Korea was lowered by 33%, the drop in the price of oil, plus the depreciation of the Australian dollar relative to the US dollar, meant that Rio could drastically lower its costs in Australian dollars, thus making a healthy profit. Rio is “sucking the blood” out of the Chinese consumer and taxpayer, Zhang says. To counter this, he suggests that an anti-monopoly tax be levied on Vale do Rio Doce, BHP Billiton, and Rio Tinto. He regrets that such a tax was not included in the recently promulgated Anti-Monopoly Law. Zhang seems to ignore the fact that, after Coca-Cola’s failed purchase of Chinese beverage maker Huiyuan, foreign investors find the Anti-Monopoly Law ominous enough as it is.

Chauvinists and scholars

While the government has argued that the Rio Tinto case is strictly a legal issue that should not be politicized, its use of the Law on Guarding State Secrets, and its delay in issuing specific allegations, has caused a foreign policy standoff at the highest level. As a result, the case has led to a renewed assessment of Chinese relations with the world, exposing hard-line and moderate factions in the media.

Among hard-liners, the case has predictably incited chauvinist sentiments. One of the subjects of attack has been Australia’s Prime Minister Rudd, the fluent Mandarin speaker who has been eager to deepen ties with Beijing. One of his most acrimonious critics is Liu Yang, an outspoken nationalist who achieved notoriety as the co-author of Unhappy China. Liu argues that by defending Rio Tinto, Rudd has undertaken a volte-face that will tarnish his image in China. Xiao De of International Herald Leader (国际先驱导报), meanwhile, tries to harness anti-Rudd sentiments in the general public. He quotes a study-abroad student who participated in the “protect the torch” activities last year as saying that Rudd has always been janus-faced, because he advocated human rights for Tibet while professing to be a “friend” of China. Xiao De also cites the results of an online survey conducted by Sina.com, where 73.1% of those surveyed think Rudd is “not the way they once imagined him to be”.

Not surprisingly, many of those who dislike Rudd dislike Australia as well. In the Sina.com survey cited by Xiao De, 82.7% of those surveyed think the Australian government’s treatment of the Rio Tinto case shows it “harbors no friendly intentions toward China”. Liu Yang does not hesitate to join the choir. Most Australians, he says, are descendants of British criminals, and the nation is built on the massacres of aboriginal peoples. Now Australians “are using the wealth they pillaged to hoodwink China, and at the same time are worried that the wealth they obtained through massacre and pillage will be bought up by China through the use of their own legal system…” The latter statement clearly implies China’s acquisition of mineral resources in Australia. In a further twist, Liu points to the recent murder of a Chinese family in Sydney to suggest that anti-Chinese sentiment is taking hold of Australia.

What has made anti-Australian sentiment worse is that the Rio Tinto case has coincided with a scandal at the Melbourne Film Festival. Several Chinese directors decided to withdraw in protest after Festival organizers screened a documentary about Uyghur civil rights activist Rebiya Kadeer. Elite Reference (青年参考), a digest newspaper and website aimed at a younger audience, makes a direct link between the incident and the Rio Tinto case by placing the events in a sequence of Sino-Australian rows that began with the torch relay protests last year.

While hard-liners are very vocal, they do not constitute the whole of media opinion. One of the paradoxes of the Chinese media is that it can be anti-Western while maintaining an avid interest in Western opinion. Cankao Xiaoxi (参考消息), the prime source for Chinese translations of Western news articles, has not hesitated to republish articles from Australian and US newspapers that oppose the Chinese government: opinion pieces taken from Reuters and Newsweek, for instance, argue that China’s unjust legal system places foreign companies at risk in strategic sectors and allows the government to interfere in commerce whenever it pleases. Through such articles, Chinese readers can gain some insight into Western opinion.

Extensive analysis of Western media can be quite constructive when it exposes unprofessional journalism. World Business Report rightfully argues that the Australian media has overhyped the Rio Tinto case, citing phrases like “[the case will] completely ruin China’s image in Australia” (The Australian) and “China needs to understand that economic development does not stem from cannons and prisons” (Sydney Morning Herald). The International Herald Leader complains that Stern Hu is lauded by The Australian as an “able, hard-working, modest gentleman”, in spite of his suspected bribery activity.

Criticism of tendentious reporting can take on larger dimensions. World Business Report suggests that biased coverage of the Rio Tinto case is symptomatic of the “yellow spy” conspiracy still prevalent in the West. It focuses on Germany’s Der Spiegel magazine, which published articles in 2007 and 2009 alleging the presence of Chinese commercial spies in Germany. World Business Report points out that this information was republished unquestioningly by other Western media, including the BBC; even though the Chinese community in Germany had sued Der Spiegel for its comments in the 2007 article, and the BBC acknowledged that the 2009 Der Spiegel report had no factual basis. To show that such reporting is a general trend, World Business Report turns to the United States, where the Christian Science Monitor recently alleged the presence of 3,500 commercial spies from China. In conclusion, the article suggests that the Western media is using the “China spy theme” to distract from its own spy activities in China. Unfortunately, this conclusion is guilty of the same conspiracy theories that it is criticizing in the West.

Perhaps the most reasonable voice in the debate about the Rio Tinto case has been Li Yonghui, professor for foreign relations at Beijing Foreign Studies University. In a speech republished in the Global Times, Li places the case within a broader paradigm shift currently taking place in China’s relationship with the world. After 30 years of unfettered globalization, this relationship will now be marked by less integration and interdependence, as well as by a power shift from the United States to China. In this new era, China will be more willing to defend its own views and values, which will inevitably lead to more friction and conflict with the world, as demonstrated by the Rio Tinto case. But he sees this as coinciding with more conflicts within China, as domestic reform takes precedence over GDP growth, and the economy becomes less reliant on global trade.

While Li does not contradict the government’s view (à la Wen Jiabao) that China is set to become a “great power”, he does recognize that such a rise will be accompanied by domestic challenges. It is promising to see such introspection as well in critiques of China’s legal system and the steel sector. In general, such commentaries acknowledge that the country’s problems must primarily be resolved from the inside. They also realize that coexisting with the West can only be achieved through greater openness, starting with the free flow of information. For even if there is concrete evidence to find Rio Tinto guilty of wrongdoing, such an outcome would not put a lid on the Pandora’s box that has been opened by this case.