China says Rio Tinto staff hurt interests

By Benjamin Kang Lim and Rob Taylor

BEIJING/SYDNEY (Reuters) - China said on Thursday detained staff from Australian miner Rio Tinto had harmed China's economic interests in a case that has rattled currency markets and raised questions about China-Australia relations.

Beijing confirmed on Thursday the detention of an Australian mining executive and three other Shanghai-based employees of global miner Rio Tinto.

Chinese authorities have "a vast amount of irrefutable evidence" which showed the four "pried and stole Chinese state secrets for overseas, gravely harming China's economic interests and economic security," Foreign Ministry spokesman Qin Gang said.

He said it was an "independent judicial case ... and should not be gradually enlarged or politicized." Doing the latter "would also be detrimental to Australia," he added.

The head of the iron ore department with the foreign trade and investment unit of state-owned Chinese steel company Shougang Group has also been detained, newspaper reports and a Chinese steel industry executive said on Thursday.

Reports of the Rio Tinto detentions had already emerged from Australian sources in recent days, with investors concerned the affair could hurt Australia's ties with its biggest trade partner.

It could also increase concerns about doing business in China generally, as sources told Reuters that computers, likely containing sensitive commercial information relating to iron ore contracts, have also been removed from Rio's Shanghai offices.

"This really does highlight, possibly more than any other case in recent years, the potential vulnerability to the law (in China) being interpreted very flexibly, and the huge grey area especially around information and what constitutes a state secret," said Andrew Gilholm, Control Risks' senior analyst for China and Northeast Asia.

Australia's Foreign Minister Stephen Smith said his officials were yet to talk to Stern Hu, Rio Tinto Ltd's top iron ore salesman in China, after his weekend detention. An Australian foreign ministry statement said China would give consular access to Hu on Friday.

WELFARE WORRIES

"One of the reasons why we want access to him, is to satisfy ourselves as to his welfare, to satisfy ourselves as to his well-being," Smith told Australian state television. He described the spying accusations against Hu as "very surprising."

The executive detained from China's Shougang Group -- Tan Yixin, assistant general manager of China Shougang International Trade & Engineering Corp -- was close to Hu, the official newspaper China Daily said on Thursday, citing unnamed sources.

The China Daily said steel firms were banned from signing long term iron ore contracts with foreign suppliers without permission.

Rio said its Shanghai office was mainly a sales and marketing operation for the company, the world's second-biggest iron ore producer, which is listed in London and Australia.

Fears the issue could damage trade ties saw the Australian dollar slump against the yen in offshore trade in its biggest one-day drop in 2- months. By late in the Australian trading day it had regained some ground to 72.60 yen from an overnight 70.94 but was still vulnerable to China worries.