Rio Tinto trial in China worries foreign investors

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MARCO WERMAN: I'm Marco Werman. This is The World. In Shanghai the trial of four executives of the Anglo-Australian mining company, Rio Tinto, ended today. One of the defendants is Australian, the other three are Chinese. They were accused of taking bribes and stealing commercial secrets. The defendants admitted some of the bribery charges. No verdict has been announced. But whatever the outcome, this case was about more than the alleged misdeeds of four executives. You see, Rio Tinto is a mining giant, the world's second largest producer of iron ore. If Rio Tinto can run afoul of the authorities, the same week that internet Google said it will pull out of China, what does all this say about how foreign businesses have to operate in China? The World's Mary Kay Magistad is in Beijing and is here to clarify some of this. First of all Mary Kay, what did we learn from this trial today?

MARY KAY MAGISTAD: Well we haven't learned a whole lot because in fact the trial today, which was the third day of the trial, was mostly closed. It was about those commercial secrets. Even diplomat from the Australian embassy weren't allowed to go in. But what we do know is that all four men plead guilty to some bribery charges, but they weren't the bribery charges that had originally been thought to have been brought against them. Back when this first came up in July, and these men were first detained, the Chinese state run media were saying that they had tried to bribe state owned enterprises, Chinese steel companies, to get state secrets and then to fix iron ore prices and make them much higher. What these men have admitted to is that they accepted bribes from Chinese steel companies. It's not clear exactly what was being asked of them. Where we're at at the moment is that he courts have said that they'll let the Australian government know, they'll let everyone know when they decide that they're going to announce a verdict.

WERMAN: So as far as the charges of stealing state secrets, apparently Chinese law makes it very difficult to know just what stealing state secrets is.

MAGISTAD: Right. Even the contents of the state secrets law are, in part, secret. But what's been interesting is that the Chinese government has kind of dialed it back a bit in terms of what they're accusing these men of. They're now saying that it's theft of commercial secrets and bribery. And it's not at all clear whether the commercial secrets charge is going to stick.

WERMAN: So uncertainty on when the verdict might come on this trial. It's worth mentioning that a very high number of trials in China end up in conviction. I didn't know that.

MAGISTAD: Certainly the vast majority do. The Chinese government, once it has arrested someone, it wants to be seen to be right, to have acted because it had evidence and occasionally it will back down slightly. It maybe will have two or three charges against someone and will convict on the lesser charge and may even let someone off for time served. But it's very rare that they'll let someone go free.

WERMAN: I spite of this case and this trial, Mary Kay, Rio Tinto has gone a long way to keep a good business relationship with the Chinese government. What are they up to?

MAGISTAD: Well absolutely. On Friday Rio Tinto announced that it had formed a joint venture with Chanelco, which is a big Chinese steel company to develop an iron ore project in Guinea, in Africa and on Monday Rio Tinto's chief executive spoke at the China development forum here and pledged to work with China to find mineral resources in China and overseas. Resources, mineral wealth, oil, gas, are all big businesses for Australia. In fact some analysts in Australia have suggested that in fact Australia is becoming a little too dependent on China and on this sector in particular and that a case like this just tends to amplify what some of the dangers are of becoming too dependent in this way.

WERMAN: So Google shut down its Chinese language server on the mainland this week. The Rio Tinto story provides another example of the unpredictability of doing business in China. Is the international business community there worried?

MAGISTAD: There certainly had been considerable worries when the Rio Tinto case first broke in July. There was a sharp intake of breath and a lot of foreign investors here who had been in China for a long time said look, up until this point we thought that even though the courts don't work all that well here, we had kind of an understanding, a predictable business environment. This was not predicted. This was not something we thought could happen here, or would happen here and it makes us reassess, what does it mean to do business in China?

WERMAN: Mary Kay great to speak with you. Thank you.

MAGISTAD: Thanks. Good speaking with you too Marco.

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