When Chinalco was rebuffed in its aggressive attempt to take a dominant share in Australia’s second most important mining company, Rio Tinto, there were always going to be repercussions.
Only now is the Rudd Government seeing just how big the stakes were for Australia over the failed Rio deal.
Chinalco – or the Aluminium Corporation of China – was offering US$20 billion for an enlarged stake in Rio Tinto – an Australian-Anglo listed iron ore giant.
The offer had posed a massive headache for the Rudd Government, which was torn between offending a trading partner behemoth which was now underpinning the Australian economy, and offending Australian voters who were overwhelmingly opposed to selling off a gigantic portion of the family farm to communist China.
The offer was never a straight commercial transaction and involved much deeper economic, strategic and national issues for both countries.
In the end, the Australian Government was relieved of its agonising decision to choose between the two, because Rio itself walked away from the offer.
But this did not lessen the annoyance expressed by China which has been using its vast reserves and the window of opportunity of the global economic crisis to buy up foreign resources and other assets.
The fact remains that the secretive and totalitarian Chinese one-party state maintains a pervasive role in running its national economy, and that companies like Chinalco and the Chinese Government are deeply intertwined.
Chinalco executives report directly to the Chinese Government central committee, and it now seems the company had access to Chinese Government security and espionage agencies to spy on foreign competitors.
On July 5, Stern Hu, a Chinese-born Australian citizen and executive of Rio, was detained in Shanghai on suspicion of stealing state secrets, bribery and undermining China’s economic security.
At the time of writing, Hu had not been charged with anything and has not yet been given access to lawyers. Potentially, under Chinese law, Mr Hu could be held for up to 10 months without charge. The iron ore executive is permitted only one visit a month from Australian consular officials.
The Opposition has criticised Prime Minister Kevin Rudd, who boasts a special relationship with China, for taking leave in the middle of the incident, and refusing to involve himself at a one-on-one level with Chinese President Hu Jintao.
Foreign Minister Stephen Smith has also been criticised for taking a trip to Cairo during Mr Hu’s incarceration, but Trade Minister Simon Crean has been in China making overtures for meeting with Chinese officials over the matter.
Fairfax newspaper reports, from its Beijing correspondent John Garnaut, the son of former ambassador Professor Ross Garnaut, have alleged that President Hu Jintao had personally endorsed the Ministry of State Security investigation into Rio Tinto which led to the detention of Mr Hu.
According to Mr Garnaut, the investigation into Rio was part of a major step-up of spy and security organisations into China’s commercial interests, although many China observers say these activities have been going on for as long as anyone can remember.
The Rudd Government’s line is that it is (at least initially) intending to deal with the issue via a “step by step, methodical approach”.
In other words, it is leaving it to diplomats in the Department of Foreign Affairs and Trade to do the heavy lifting, including meeting with China’s acting ambassador in Canberra.
In fact, Mr Rudd would have been quite unwise to become involved in the matter too precipitately and it would have been potentially counter-productive. This is particularly the case if, as it appears to be, China’s motives for the arrest were partly symbolic.
ANU academic Clive Williams says the arrest is in fact China sending a signal to Chinese-born foreign residents working in China.
“Basically, I think what they (the Chinese Government) want to do is to send a message to other Chinese employees of foreign companies in China that their first loyalty is to China and not to the company that employs them,” Professor Williams told ABC radio.
The second underlying message from China to foreign companies, including those from Australia working in China, is that they should be very careful about how they go about doing business there.
Already, China was letting it be known that the reason for the Hu arrest was the result of “internal tensions” between the Government’s security forces and economic liberalisers.
Put simply, the Chinese Government will portray the Hu arrest as the result of over-zealous security officials who will be assigned the blame after he is eventually released.
For the Rudd Government the episode should be a reality check on its unbridled enthusiasm for pursuing the myth of a “free trade” agenda with China.
It is also a reminder, if any was ever needed, that the ambitions of China’s commercial enterprises and its one-party state and its associated mercantilist policies are one and the same thing.