Rio rejects Chinese bribe reports

Journalists stand outside a Rio Tinto office in Shanghai July 9, 2009.

CANBERRA/BEIJING (Reuters) - Global miner Rio Tinto on Friday strongly defended its four employees being held in China on accusations of industrial espionage, saying claims they bribed Chinese steel mills were unfounded.

The Anglo-Australian miner said it was "very concerned" for its workers, held in Shanghai since July 5.

The detention of Australian Stern Hu and three Chinese colleagues have strained Australia-China ties, with Beijing warning Canberra not to interfere in its judicial independence.

The detentions have also unsettled the global iron ore trade, but Rio, which sells billions of dollars worth of iron ore to Chinese steel mills each year, said it was maintaining high tonnages of iron ore shipments to China.

"Rio Tinto believes that the allegations in recent media reports that employees were involved in bribery of officials at Chinese steel mills are wholly without foundation," Sam Walsh, chief executive of Rio Tinto's Iron Ore division said.

"We remain fully supportive of our detained employees, and believe that they acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behavior," Walsh said in a statement.

China detained the four workers on allegations of stealing state secrets related to sensitive iron ore price negotiations.

The detentions have complicated annual negotiations on iron ore contract prices between Chinese steel mills and Australia's top mining firms Rio and BHP Billiton. Iron ore is used to make steel.

This year's negotiations have been fraught, since they coincided with the collapse of a deal by Chinese state-owned aluminum firm, Chinalco, to increase its stake in Rio.

BILATERAL WARNINGS

Australia and China traded warnings on Thursday over the spy case, while the United States urged Beijing to ensure transparency and fair treatment for staff of foreign companies.

Australian Foreign Minister Stephen Smith said he believed China had not yet reached a conclusion that the four detained Rio employees were guilty and investigations were ongoing.

Smith, who discussed the detentions with China's Vice Minister for Foreign Affairs He Yafei at a meeting in Egypt on Thursday, said statements by an official in Beijing that the four had harmed China's economic interests were not conclusive.

Australia understood the matter was "subject to an investigation, subject to Chinese law and Chinese potentially criminal, legal and judicial processes," and had made that point to He during their meeting, said Smith.

"An investigation is under way. He (Stern Hu) has not yet been on the receiving end of charges. If and when he is, we will deal with it at that point in time," he said by telephone from Dubai.

But some analysts believe China would not have detained the Rio workers without strong evidence.

"The Chinese government knows that if it really does not have evidence at this critical time, its image will be damaged," said Scotia Capital China strategist Na Liu.

"In recent years, China has been very conscious in terms of its image and has been improving its PR skills. It would not likely risk the prospect of future foreign resource acquisitions with baseless allegations against Rio."

Australia's Mandarin-speaking Prime Minister Kevin Rudd, a former Beijing diplomat, has been criticized at home for not intervening in the case and phoning China's President Hu Jintao.

Rudd, facing an election late next year, is struggling "to strike the right note with the Chinese," senior Age newspaper political editor Michelle Grattan wrote.

China is Australia's top trading partner, with total two-way trade worth $53 billion in 2008, of which the iron ore trade made up $14 billion.

(Additional reporting by James Regan in SYDNEY; Editing by Michael Perry and Dean Yates)