Rio Tinto, China Strikes Back

Still smarting from its failed attempt to buy into the Australian mining giant, Beijing makes a new bid to secure its supply of iron ore.
By Bill Powell, senior writer
Last Updated: August 24, 2009: 11:54 AM ET

NEW YORK (Fortune) — After officials in Beijing last month arrested four Rio Tinto executives for allegedly stealing secrets from Chinese steel companies, China took a brutal public relations beating internationally.

The outcry increased when China said that the businessmen — including the head of Rio Tinto’s iron-ore division in Shanghai, Australian passport-holder Stern Hu — had been seized by the State Security Bureau and were suspected of stealing “state secrets.” That meant they could be tried in secret and, more than likely, not even be able to offer any defense.

Then, on August 11, China announced formally that the four had been arrested, but it had dropped the “state secrets” charge and will apparently base the case on commercial bribery allegations. This was, correctly, viewed as something of a climb down, a tacit admission by authorities that they had overreached.

But it didn’t mean Beijing still wasn’t angry about Rio Tinto (RTP) having turned away from a $19.5 billion investment that Chinalco — the state-owned aluminum company — had planned to make in the Anglo-Australian miner. Beijing’s tack now is not just to get mad. It’s to get even.

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