China exec probed for leaking price strategy to Rio

By Rob Taylor and Lucy Hornby

CANBERRA/BEIJING (Reuters) - A Chinese steel executive detained along with four Rio Tinto employees is under investigation for leaking China's "bottom line" in iron ore price negotiations, a source with knowledge of the probe said on Friday.

Tan Yixin, the head of iron ore imports for state-owned steelmaker Shougang, has been taken into custody on suspicion of "revealing China's negotiating strategy" to Anglo-Australian miner Rio Tinto Ltd, the source told Reuters, requesting anonymity.

The shock detentions have cast a shadow on relations between Beijing and Canberra, whose economies have been welded together in recent years by China's huge demand for metals and minerals.

As Australia sought to avert the diplomatic row, the China Securities Journal said Shanghai's State Security Bureau accused the three local Rio staff and senior Australian executive Stern Hu of bribing unidentified Chinese steelmakers during tense iron ore price negotiations this year.

"This seriously damaged China's economic security and interests," said the paper, which is published by the state-run Xinhua news agency. "The activities of Stern Hu and the others violated Chinese law as well as international business morality."

Asked if negotiating strategy meant iron ore prices, the Reuters source said: "Yes, China's bottom line."

Shougang officials could not immediately be reached for comment.

China's ambassador to Australia was summoned to the Foreign Ministry late on Thursday to discuss what local newspapers called a fast-escalating crisis.

A Rio spokesman expressed surprise at the turn of events, saying the group was "not aware of any evidence that would support these allegations."

Chinese security authorities detained the four Rio employees on Sunday, alleging they were involved in stealing state secrets.

Chinese law is vague on what that constitutes, but economic data such as gold holdings and currency movements have at different times been deemed secret, so it would not be a stretch for information about a lucrative state-owned industry such as steel to be included.

Australian Foreign Minister Stephen Smith told reporters in Perth that China appeared to have a "broader" definition of what amounted to industrial espionage than many other countries.

"It's very hard for the Australian government to see the connection between what might be daily commercial and economic negotiations and national security issues," he said.

RUDD UNDER FIRE

Smith said Canberra was treading warily.