Chinese spy probe widens; Australia wants haste

By Lucy Hornby

BEIJING (Reuters) - Chinese investigators have questioned executives at several steel mills in a widening probe of alleged leaks of state secrets to Australian iron ore supplier Rio Tinto, Chinese media said on Tuesday.

The news comes as Australian officials urged China to move quickly in dealing with the detention of a senior Australian Rio executive on spying accusations, a case that has cast a shadow over bilateral trade worth $53 billion (32 billion pounds) last year.

The broadening investigation targets some of the nation's largest mills, all influential members of the China Iron and Steel Association (CISA), which represents the Chinese industry in annual negotiations with global iron ore miners.

That could increase tensions between CISA and the steel mills, many of which are impatient with the association for so far failing to reach a new price settlement for 2009 with miners Rio, BHP Billiton and Brazil's Vale.

"This is a case involving foreign companies, and isn't a small matter. Our association cannot provide more detailed information," CISA secretary General Shan Shanghua told the 21st Century Business Herald.

"The situation isn't how many people imagine it."

Investigations have touched Baosteel Group, which used to lead negotiations, as well as Anshan Iron and Steel Group (Angang), its partner Benxi Iron and Steel Group, Shandong-based Laiwu Iron and Steel Group and Jinan Iron and Steel Group, the China Daily said.

Meanwhile, CISA and the Ministry of Commerce are reviewing iron ore import licenses to identify speculative importers, and are likely to cut about 20 licenses, most belonging to trading firms, three industry sources said.

Similar reviews have been conducted in previous years, usually after periods in which spot ore imports have spiked.

SECRETS, AND A RIFT

The Shanghai State Security Bureau earlier this month detained Australian Stern Hu, a Rio Tinto executive based in Shanghai, along with three of his Chinese colleagues, alleging the four "pried and stole" state secrets.

"Australian officials will continue to press Chinese authorities for further detail on the reasons for Mr Hu's detention and reiterate Australia's view that his case should be handled expeditiously," Treasurer Wayne Swan said in Canberra.

The alleged secrets relate to CISA's negotiating stance, as well as commercially sensitive information such as mill production plans, iron ore stock levels and import information, to aid Rio in annual price negotiations.

CISA took over as the lead negotiator in this year's round of talks after strong prices in the first half of 2008 forced Baosteel to agree to a sharp rise in term prices last year.

However, CISA failed to reach an agreement by a June 30 deadline as it attempted to get a better deal than a 33 percent cut agreed to by Japanese and South Korean rivals. That created a rift, which could be worsened by the investigations.