Australia Rudd's China halo slips over Rio arrests

By Rob Taylor

CANBERRA, July 13 (Reuters) - Australia's Prime Minister Kevin Rudd, a former Beijing diplomat and fluent Mandarin speaker, appears to be losing his China halo.

Rudd, arrived home from Europe on Monday to a blizzard of newspaper criticism for not using his so-called "special relationship" with China's leadership to massage the release of a Chinese-Australian sales executive from global miner Rio Tinto (RIO.AX)(RIO.L)

"Where, precisely, are Prime Minister Kevin Rudd's fluent Mandarin and diplomatic finesse when we need them?" said an editorial in the Herald Sun, Australia's biggest selling newspaper, echoing other newspapers across the country.

Rudd has forged a close relationship with China's leadership, phoning Premier Wen Jiabao in September 2008 to discuss the unfolding financial crisis and addressing President Hu Jintao in Mandarin at a 2007 regional leaders' conference.

During his 2007 election race, Rudd promised deeper Australian engagement with Asia, and especially China, built on his tenure as first secretary to the Beijing embassy in the 1980s. He promised also to retool Australia as the most "Asia-literate" Western country through better education.

"It was highly effective in defining Rudd politically," said journalist Glen Milne in The Australian. "It now threatens to become a manifest weakness. What we are now witnessing is the harvest of Rudd's mismanagement of the China relationship."

Rudd's image as a China expert has been dented by recent political wrangling over a failed $19.5 billion investment by Chinese metals firm Chinalco in Anglo-Australian miner Rio Tinto, and now the arrest of Chinese-Australian Stern Hu, Rio's top iron ore salesman in China.

It is a rare slip in otherwise sure-footed policy carrying Rudd's standing in opinion surveys to record levels ahead of elections due late next year. Uncomfortably, it comes also in an area supposed to be his strength: foreign policy.

ECONOMIC BLOW-BACK

But international security analyst Clive Williams said every country, not only Australia, faced difficulties dealing with China at the moment, because of the country's economic problems and leadership sensitivities about them.

China's President Hu personally endorsed the investigation into Rio Tinto that led to the detentions, the Sydney Morning Herald newspaper said on Monday, as part of a realignment of how the country manages its post-crisis economy. [ID:nSYU006837]

"It's a difficult time to be dealing with China, because in a state-controlled economy there is a certain amount of blow-back from economic stagnancy to the leadership," Williams, from the Strategic and Defence Studies Centre, told Reuters.

"Economic progress keeps a lid on a lot of other problems, like the Uighurs and a very large displaced population in China," Williams said. "When people are getting a decent income, they don't worry so much, but when the jobs dry up, they focus a lot on the leadership."

To compound Rio's difficulties, Chinese authorities often saw the activities of foreign companies as interference in internal Chinese affairs, going far beyond their commercial activities.

"There is an acceptance I think generally that you have to bribe people to do business in China, but it doesn't extend to bribing people to get information," Williams said.

The furore over the Rio detentions is unlikely to end anytime soon because Australian Stern Hu was born in China and seen under Chinese law as Chinese as he faces accusations of bribery to secure state economic secrets. [ID:nSP478784]

Hu, branded a "turncoat" on the Chinese internet, was seen as a Chinese national working for a foreign company, conducting activities detrimental to China's national security interest.

Williams said Rudd and his Foreign Minister Stephen Smith, who at the weekend said Canberra was bracing for a "long-haul" in the Rio case, had no diplomatic leverage, despite energy-hungry China's reliance on Australian resource exports.

"Kevin Rudd has kept a pretty low profile on it all so far, because he knows that it doesn't matter what he does, it is not going to make a skerrick of difference in China," he said. (Editing by Bill Tarrant)