Q+A - China holds Rio Tinto executives in secrets case

By Lucy Hornby

BEIJING (Reuters) - Four Shanghai-based employees of global mining firm Rio Tinto were detained last week on accusations of stealing state secrets.

The case highlights the risks for foreigners doing business in China, a country run by a single party with no independent judiciary.

WHAT HAPPENED?

Stern Hu, Rio's head of iron ore marketing in China, and three other members of the iron ore team were detained in early July for "stealing state secrets." Sources said Hu, an Australian of Chinese descent, was accused of obtaining and passing on the Chinese industry's negotiating position.

An iron ore executive from China's eighth-largest mill, Shougang, was also taken into custody, Chinese media reported. Executives from other big Chinese mills have also been questioned.

The arrests came as local media reported Chinese steel mills had given in on annual iron ore prices, agreeing to the same 33 percent cut other Asian steelmakers set earlier.

That capitulation would be a loss of face for the state-backed Chinese Iron and Steel Association, which had vowed to the central government it could achieve a deeper discount. Chinese and Rio Tinto officials have denied any agreement was reached.

WHAT ROLE DOES RIO'S CHINA TEAM PLAY?

Rio Tinto's annual iron ore price negotiations with all Asian steelmakers, including those in China, are headed up by a team based in Singapore.

Traditionally, all steel mills accept whatever deal is first settled between any mill and any of the big three miners, Rio, BHP Billiton and Brazil's Vale. This year, the Japanese and Korean mills have already settled.

The China team is responsible for carrying out the operational details of term contracts. They might also negotiate new term contracts and the desired volume with term clients.

The miners rely on their China-based team for predictions of China's future iron ore demand and steel capacity, as well as for information about the current market.

WHAT IS A STATE SECRET?

Chinese law is vague on what constitutes a secret, and the charge has been variously applied to academics, executives, journalists and dissidents.

Economic data, particularly involving gold holdings, currency movements, and key economic indicators, have at different times been deemed state secrets as have more traditional matters involving the military or movements by China's top leaders.