Australia warns of risks to delay in China spy case

By Fayen Wong and Lucy Hornby

PERTH/BEIJING (Reuters) - Australia warned China on Sunday of the risks to business confidence from the detention without charge of an Australian executive accused of stealing state secrets, and Chinese executives feared a wider purge.

The detention a week ago of Anglo-Australian miner Rio Tinto's top iron ore salesman in China, Australian citizen Stern Hu, and three of his Chinese subordinates has cast a shadow over Australia-China relations and unnerved the steel industry.

Rio Tinto, the world's second-largest iron ore miner, was locked in tense price negotiations with China when Hu and his coworkers were detained in Shanghai, accused of stealing state secrets and bribing Chinese steelmakers for information.

"One of the issues for Chinese authorities to contemplate is the extent to which the circumstances of this case will cause the international business community to have any cause for concern," Australian Foreign Minister Stephen Smith said on Sunday.

Australian authorities were still pressing for details of the allegations against Hu, Smith said, adding that China had still not revealed to them any evidence supporting the detentions.

Chinese media reports say information from an internal meeting of the China Iron and Steel Association regarding the negotiations was leaked, and have reported that the investigation has extended to several senior figures in the Chinese steel industry, including within the association itself.

A senior executive at Shougang, China's eighth-largest mill, has been detained.

Sources say some Rio Tinto computers were removed in the course of the investigation, which could potentially expose the company's negotiating strategy as well as contractual terms with the mills it supplies. Rio has not commented on the computers.

Foreign firms operating in China are already alert to the problem of Internet and phone communications being monitored for commercially sensitive information.

This matter has so far been confined to Rio Tinto, but rival Australian iron ore miner BHP Billiton and Brazil's Vale are watching events closely.

"There is nothing to cause me to believe that the matters relating to Hu's detention would in any way go wider within the Australian business community operating in China," Smith said, when asked if other Australian firms operating in China had been questioned by Chinese authorities in relation to the probe.

Chinese-born Hu is now being branded a "turncoat" on the Chinese Internet. Many other Chinese in the steel industry are nervous about discussing the case by telephone.

"LONG HAUL"

Smith, and other Australian ministers, have called on Chinese authorities to handle the case expeditiously, and to consider the wider risks for international business confidence.

The case comes after Rio Tinto called off a proposed buy-in by Chinese state-owned aluminum giant Chinalco, in favor of an iron ore production joint venture with BHP.