Is there a deal in the offing for the Rio Tinto Four?

Reports on the websites of two Chinese Government-related news outlets, the official Xinhua and the semi-official China Daily say Stern Hu and his three Chinese associates have been formally arrested, but there’s no mention of the most serious charge of all, espionage.

Xinhua‘s report was most detailed, it started:

“Prosecutors have approved the arrest of four employees of the Anglo-Australian mining giant Rio Tinto Ltd on charges of trade secrets infringement and bribery, according to a statement of China’s Supreme People’s Procuratorate late Tuesday.

“Preliminary investigations have showed that the four employees, Stern Hu, Liu Caikui, Ge Minqiang and Wang Yong, had obtained commercial secrets of China’s steel and iron industry through improper means, which had violated the country’s Criminal Law, according to the statement.

“Prosecution authorities also found evidence to prove that they were involved in commercial bribery.

“Investigations have also revealed that there were suspects in China’s steel and iron enterprises who were providing commercial secrets for them.”

Espionage claims had been widely discussed in Chinese media and reported in Australia and overseas outlets. The allegations were made, but it seems there’s no mention of those in the formal arrest statements from the government.

The arrests came late Tuesday and seem to have happened after Australian consular officials made their second visit to Stern Hu.

That was noted in a statement from Rio’s head of iron ore, Sam Walsh who said in part:

Sam Walsh, chief executive iron, ore acknowledged the second visit to detained Rio Tinto employee, Stern Hu, by Australian Consular officials.

Mr Walsh said, “We are pleased to hear that Stern appeared well and that he raised no welfare or medical concerns.

Mr Walsh said the company remained surprised and concerned over the detention of its four employees, and said the company had still not been informed of any charges against them.

He said, “we are still not aware of any evidence that would support their detention. Rio Tinto is committed to high standards in business integrity and takes its ethical responsibilities very seriously.

We continue to be concerned for the health and welfare of our three other employees detained at the same time as Stern Hu,” he said.

Mr Walsh thanked the Australian Government for the attention it is giving to this case and to Stern Hu’s welfare.

There was also no mention of fraud, as was claimed in the stories earlier this week which seem to have been an embarrassment for China because the author has disappeared, as has the offending story (as detailed in Crikey on Tuesday).

The announcement came more than a month after the four employees were detained in Shanghai and accused of stealing state secrets from China’s steel industry and harming the nation’s economic interests.

The charges appear to be “normal” and not under the state secrets law which had raised the prospect of long jail sentences and even more secrecy than we have seen so far in the case.

And that leads to the suggestion that China might now be trying to downplay the case because of the ructions it is creating with Australia and other trading groups who are upset at the message it sends.

That in turn could see the four convicted, the three Chinese jailed and Stern Hu convicted and expelled after a suitable period of time, with an apology from Rio Tinto.

It is also linked to the China iron and steel industry, whose industry association has badly handled iron ore contract talks with Rio and BHP Billiton, along with Vale of Brazil. The Association (CISA) has stonewalled on settling contract prices by demanding larger price cuts than the 33 per cent average obtained by Japanese steel mills earlier in the year. Spot prices have risen faster than anyone thought and this week hit $US111 a tonne on a CIF basis ex India for Chinese delivery.

That’s more than $US40 a tonne above the contracted price in Japan.

Then there was the $US19.5 billion Chinalco deal which Rio originally sought to help repair a balance sheet badly damaged by the over priced purchase of Alcan and the subsequent slump in global commodity prices as the world recession rolled over every industry.

But Rio wriggled free of Chinalco as commodity prices started rising from around May onwards off the back of an easing of the recession and the rise in global sharemarkets. Eventually Rio bailed from the deal and did one with BHP to joint venture their Western Australian iron ore interests, and raised around $US15 billion in a rights issue.

That was to have been China’s biggest offshore investment, and its termination caused a lot of murmurings in Beijing, especially with the Chinalco management intimately connected to the Chinese leadership.

But those stories of China going elsewhere and ignoring Australia have proven to be like many of the Rio stories, a lot of hot air, which was meekly accepted as gospel by some Australian media outlets.

The reality is that China still wants to deal: the China Minmetals deal with Oz Minerals was done at a lower price, but done and now a major Chinese company is in talks this week to acquire NSW coal miner,

Felix resources for a reported $US3.5 billion, which would be China’s biggest play in the Australian coal industry.

It now wouldn’t surprise to see a rapid settlement of Chinese iron ore contracts, or the establish of a new pricing method, with the agreement of Rio and BHP and lot’s of talk about mutual co-operation.