Q+A: What is China’s Rio trial about?

BEIJING (BestGrowthStock) – Four employees of mining giant Rio Tinto, including Australian national Stern Hu, faced trial in China on Monday, charged with receiving bribes and infringing commercial secrets.

Here is an explanation of the case and its implications.

WHAT ARE THE FOUR ACCUSED OF?

Australian Stern Hu and three Chinese executives of the Anglo-Australian miner, which does much business with China, were formally arrested in July. The three Chinese are Liu Caikui, Ge Minqiang and Wang Yong.

They were arrested on suspicion of illegally obtaining commercial secrets and bribery. Initial Chinese media reports that they faced accusations of stealing state secrets did not materialize.

Under the commercial secrets charge, courts can jail people for up to three years, or up to seven years in “especially serious” cases.

The bribery charge could draw jail terms of up to 20 years, according to Zhang Peihong, a lawyer for one of the accused Chinese nationals, Wang Yong.

Rio has said the four did nothing wrong.

WHAT HAPPENS NEXT?

The trial has opened in Shanghai, China’s coastal financial center, where the four employees were based. It is scheduled to last three days. In Chinese trials there is sometimes a wait of days or weeks before a verdict is announced at a separate hearing.

China’s courts come under the heavy influence of the ruling Communist Party and rarely reject prosecution arguments. But the Australian government and Rio, and the defendants’ families, will be watching the trial carefully.

Australian consular officials will be allowed to observe the part of the trial dealing with the bribery charges, but they will be excluded from the part about infringing commercial secrets, the Australian government said.

Chinese trials are seldom open to foreign reporters, and the Shanghai court has not granted them access this time.

If convicted, the four men can appeal.

Chinese investigators may also take up additional cases against steel executives accused of bribery and providing business secrets in the Rio case.

At least two executives at Chinese steel companies were earlier detained in connection with the Rio case, but it is unclear whether they have also been formally charged.

WHAT DOES THE CASE MEAN FOR THE STEEL INDUSTRY?

Rio’s China team managed details of term contracts for iron ore, a necessary raw material for China’s vast steel industry, as well as tracking market information.

The Rio trial will add an element of uncertainty and wariness to already contentious iron ore negotiations between China and the three big miners: Rio, its fellow Australian miner BHP Billiton and Brazil’s Vale.

Last year China’s crude steel output accounted for almost half the world’s total. Steel output and iron ore imports both soared to record highs in 2009.

China and Rio had hard feelings even before the arrests, following the collapse of a deal by Chinese state-owned aluminum firm Chinalco to increase its stake in Rio.

Traditionally, Asian steel mills accept whatever deal is settled first between any mill and any of the big three global ore suppliers. China’s steel industry association refused to settle on that price last year and sought to change the basis of talks for 2010 prices, which take effect April 1.

This year, the Chinese side has been led by Baosteel, which joined the Chinese steel industry association and other major Chinese steel mills in a plea to the government to step into the talks.

WHAT ARE THE BROADER IMPLICATIONS OF THE CASE?

The detention of the four has stoked investors’ worries about doing business in China’s murky legal environment.

The trial comes as Google’s dispute with China over Internet censorship and hacking complaints has also brought into focus foreign business complaints about the country’s ways. Google has indicated it expects a conclusion soon in its dispute.

HOW WILL THIS IMPACT CHINA-AUSTRALIA RELATIONS?

Australian Prime Minister Kevin Rudd earlier warned China it had major economic interests at stake and the world was watching how it handled the case.

Both governments appear to want to insulate broader ties from any contention over the case, especially after the state secrets spying accusation was dropped.

But China’s decision to deny Australian officials access to part of the trial could stoke tensions, putting domestic political pressure on Rudd.

Much is at stake for both sides. China is Australia’s biggest trade partner. Australia exported $15 billion worth of iron ore to China in 2008 — 41 percent of its iron ore imports in that period.

Despite the arrest of the executives, Australian firms, including Rio, continue doing business and deals with China.

Investing Research

(Editing by Ken Wills and Sanjeev Miglani)

Q+A: What is China’s Rio trial about?