Mining giant Rio Tinto has wasted no time making it clear where it stands with China, sacking its former executive Stern Hu and his Chinese colleagues within hours of their guilty verdict and ahead of any appeals process.
But many other Australian companies are revising their strategies for operating in China in response to the bribery and industrial espionage case.
The verdict follows nine months of the Australian Government walking a sensitive diplomatic tightrope with China on how to ensure justice for Hu and his three Chinese colleagues.
But yesterday’s guilty verdicts and a 10-year prison sentence for Hu leaves Prime Minister Kevin Rudd with little room for new diplomatic dialogue, especially after all four admitted they took bribes.
“When it comes to bribery, the Australian Government’s position is consistent. We condemn bribery wherever it occurs,” Mr Rudd said.
But he says there are serious doubts about the conviction on the second charge of obtaining commercial secrets, implying the Chinese justice system has a credibility problem.
“The trial on the second charge was held in secret with no media and no Australian officials present for it,” Mr Rudd said.
“This has left, therefore, serious unanswered questions about this conviction. And holding this part of the trial in secret, China, I believe, has missed an opportunity to demonstrate to the world at large transparency that would be consistent with its emerging global role.”
Rio Tinto will not comment on the commercial secrets conviction because, like Mr Rudd, it has not seen the evidence.
But that did not stop it from sacking its four employees within hours of the verdict.
The chief executive of Rio’s iron ore division, Sam Walsh, said in a statement the men had clearly violated Chinese law and Rio’s code of conduct.
“We have been informed of the clear evidence presented in court that showed beyond doubt that the four convicted employees had accepted bribes,” Mr Walsh said.
“By doing this they engaged in deplorable behaviour that is totally at odds with our strong ethical culture.
“In accordance with our policies, we will terminate their employment.”
Minelife’s senior resources analyst, Gavin Wendt, says China and Rio both had to save face.
“I think it would have been naive of us to expect that there was going to be any other sort of outcome from this trial,” he said.
“I believe Stern Hu was going to be found guilty pretty much from the start – there was too much at stake, if you like, from a Chinese perspective.”
Rio has launched what it calls a far-reaching independent review of its operations, to look at processes and controls in the wake of the convictions.
That is on top of a forensic audit which began shortly after the Shanghai employees were detained, a review that according to Mr Walsh clears Rio Tinto of any wrongdoing.
“Rio Tinto has concluded that the illegal activities were conducted wholly outside our systems,” he said.
But legal experts around the world are questioning Rio Tinto’s conduct during the trial.
“This was so Rio Tinto can say, ‘well, gee, we can’t comment on the commercial secrets part of the case because we’re not permitted to know what’s going on’,” Professor Jerome Cohen of New York University said.
“Rio Tinto says we wash our hands of our employees because they took bribes.
“But what I don’t understand is why don’t people pursue Rio Tinto’s benefit from the acquisition of the commercial secrets.
“If it really cost the Chinese government over a billion yuan, who got most of that money?”
The Greens are calling on the Federal Government to order Australian authorities to investigate Rio Tinto.
Greens Leader Bob Brown says the Government should ask the corporate regulator, ASIC, or the Federal Police to investigate who else in the mining company knew about the bribes.
“Rio Tinto should be under investigation and it requires the Australian Government to get that investigation underway,” he said.
Foreign Affairs Minister Stephen Smith says it is up to ASIC to decide whether it wants to investigate Rio Tinto’s activities.
“I’ve seen nothing come across my desk which would cause me to contemplate such a matter in any event,” Mr Smith said.
“ASIC is an independent regulator. It can take these steps of its own volition if it so chooses.”
Business becoming complex
Meanwhile, Australian businesses planning to operate in China are busily reviewing their strategies.
John Lee, a visiting policy fellow at the Centre for Independent Studies in Washington, told the Australia Network’s Business Today that everyday deals are likely to become more complex.
“I think if you’re a foreign company and you land yourself in a dispute with a state-owned company, you better watch out,” he said.
“Most of the major companies and industries in China are dominated by state-owned companies, and these state-owned companies are not independent entities. I think this has been abundantly clear during the whole Stern Hu saga.
“The other thing is that the court system also remains under the authority of Chinese Communist Party officials.
“So you really have all the factors stacked against you if you do come across some sort of dispute, and that’s something businesses have to be abundantly clear about.”
Resources analyst Gavin Wendt says the trial will put more even more pressure on businesses to be cautious in their dealings with China.
“I think businesses have always been cautious about China, there’s always this potential in the background you may somehow cross some sort of national interest line in the sand,” he said.
But there is no stopping business, despite Rio Tinto’s woes.
Today Rio’s key competitor, BHP Billiton, struck a deal to sell the majority of its iron ore to Asian customers on shorter-term contracts, ending a 40-year system of annual pricing.
Mining analyst James Carmichael says the move comes at a critical time in Australia’s relationship with China.
“[This is] certainly a very heated time in the iron ore space generally,” he said.
“The stock price is significantly up on last year’s provisional benchmark, the indictment of Stern Hu and the settlement of iron ore prices, which are as yet still unresolved in total between people like BHP and Rio and the other iron ore producers, [are factors].
“So it’s certainly coming to a head in many, many ways. And we still await more news on the price settlements between other producers and indeed the rest of the contracts with BHP.”