China’s Steel Industry: The Grey Area

Experts on China’s large steel and iron ore industry say corrupt practices have gone on for years, including iron ore deals off the books and the exchange of confidential market data that Beijing now considers state secrets.

Analysts and industry officials, many of whom asked not to be identified Monday because they feared upsetting Beijing, said the steel industry was rife with rumors and worries that there could be a wave of arrests and detentions in the coming weeks, just as the industry was beginning to recover from a sharp slowdown.

“There’s a large gray area out there,” one industry official, who asked not to be named, said in a telephone interview on Monday. “We entertain officials all the time. Is that considered a bribe?”

David Barboza in The New York Times, July 13/14, 2009

The Rio Tinto issue comes in the wake of recent complaints by the European Union and the United States with the World Trade Organization, saying Chinese export quotas on some of its raw materials and tariffs violated the agency’s rules. The quotas, benefitting domestic Chinese industries, cover exports of critical items such as bauxite, coke, magnesium, zinc and silicon metal in which China leads world output. Despite declines in its exports due to the global financial crisis, China’s demand for raw materials, energy and other resources shows no signs of abating.

OfficialWire, July 17, 2009

From what I can see, the Chinese authorities have not been able to find any evidence against the Rio Tinto staff now under detention. Rio Tinto’s refusal to back down and the Australian Government’s stepping up of international pressure are creating further complications for the industry regulator China Iron and Steel Association (CISA). If Gordon Chang’s prediction is correct (and he usually is), some members of China’s Politburo Standing Committee are already using the Rio Tinto scandal as a pretence to launch a full scale investigation into the iron and steel industry. China’s top organ of political power has a track record of using charges of high-level corruption to sideline adversaries.

Underthejacaranda, July 18, 2009

5 Responses to “China’s Steel Industry: The Grey Area”

  1. And there is also the Vienna Convention (article 36, from memory) to consider, which the Chinese Communist Party has once again left in tatters.

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  2. JR: I’m copying this comment from my blog to here. It is related to a new development in the Stern Hu case:

    “There is a new development. WSJ quoted Australian Foreign Minister who seemed to have been given reassurance from his Chinese counterpart that the Stern Hu detention is an “investigation” into “commercial crime” not “spying”. And the investigation will be confined to the 2009 contract negotiation. I’m now waiting for reciprocal news from Xinhua to confirm. However, if Stephen Smith did not misinterpret the situation (and of course if WSJ didn’t misquote Smith), the implication is that the investigation and subsequent legal proceedings will no longer be conducted closed doors. It may also imply that the target of investigation has been re-oriented from foreign corporations to local companies.”

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  3. More updates:

    I received more information from a reliable source with regard to my comment above. My informant, who doesn’t want to be named, told me:

    1. Stephen Smith has not been told anything new;
    2. “Commercial crime” involving the mining industry is classified as “state secret” and will be under the jurisdiction of PRC’s spy agents. So it is not “commercial crime” in the Australian sense. It’s unlikely that Stern Hu and colleagues, if charged, will go through an open and transparent trial process;
    3. The arrest of Rio Tinto staff is a part of a larger investigation into corruption within China’s iron and steel industry;
    4. The investigation is approved by Hu Jintao;
    5. Several of Rio’s buyers in China have either been detained or have been interrogated in relation to this investigation;
    6. It’s unlikely that the investigation involving Rio Tinto will be confined to the 2009 contract negotiation.

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  4. Thanks a lot for the updates, C.A.. Mylaowai: If there is any international law that would require China’s government to act differently, it is an imperialist invention and doesn’t apply for peace- and justice-loving nations like China. If Beijing in any event ratified such law anyway, it was under imperialist pressure (like the threat of a nuclear war) and still doesn’t apply. Hope this will sink in.

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