What's in a secret? Rio case frightens Chinese analysts

BEIJING (Reuters) - China's detention of steel executives suspected of leaking state secrets could reduce the flow of market information in China as analysts and researchers self-censor to avoid trouble.

A senior executive at Shougang, China's eighth-largest mill, is accused of leaking China's position in annual iron ore price negotiations to four members of Rio Tinto's iron ore team, one of whom is an Australian citizen.

All five have been detained, but not charged. Because Stern Hu is Australian, the case has been taken up by the Australian government, which has twice summoned China's ambassador for an explanation.

Much of the information that was supposedly leaked is regularly sought by industry analysts and researchers. Respected Chinese analysts did not want to be named in this article, for fear discussing state secrets could bring unwelcome attention.

"We collect information. Should I now worry that we will hear a knock on the door?" said one Beijing-based consultant.

"We are all about transparency and providing information to our clients. Hopefully it will all blow over and won't spread beyond the iron and steel sector, but this is a big worry for us."

In recent years, Chinese listed corporations have become much more professional about what is, or is not, appropriate to reveal outside the company.

But using the state secrets laws, rather than corporate discipline, is a blunt tool in a country where even the headline national data is routinely available to a large circle of insiders before being officially released.

"I think after this, there will be a big change in how this data is handled," said an employee of a website that provides steel news and pricing information.

Data like steel mill production plans, maintenance plans and iron ore stock levels was regularly released by the China Iron and Steel Association to its members until last year, when CISA began limiting it to only the most senior executives.

CISA's new secretary-general, Shan Shanghua, is known for harsh response to leaks, traders said. He has already tightened discipline within CISA.

It was Shan's unsuccessful attempt to get a better deal by directing iron ore negotiations this year that caused many disgruntled steel mills to break ranks and try to sign deals directly with their suppliers.

Had it not been for the detentions, Chinese by now would have signed on the same terms as their Japanese and Korean rivals, in line with the traditional rules of the annual talks, another senior steel analyst said.

"WE HAVE TO BE VERY CAREFUL NOW"

The problem is, anything inconvenient can be a "state secret," especially if foreigners are involved.

A few years ago, the security apparatus tried to investigate who had leaked to foreign media a fax from the Ministry of Commerce that ordered the inspection and blocking of some iron ore imports from Australia. The revelation of the order caused a tiff with Australia, embarrassing the ministry.

Chinese conference organizers assume that state security agents attend industry conferences, on the lookout for a speaker that spills too much information.

Chinese research firms may deliberately use average numbers for particularly sensitive information like production costs, said one analyst.

"We have to be very careful now. Before, they would always watch our data, and sometimes if the numbers seemed too precise they would ask where we got it from," said one analyst, clarifying that "they" indicates the state security apparatus.

Many cases of foreign nationals and Chinese prosecuted for spilling state secrets focused on the transfer to outsiders of information already circulated within China, making it harder to anticipate what might be a secret.

Foreign companies who rely on Chinese-born staff to navigate China's opaque business environment need a clearer understanding of what may be considered a violation of Chinese law, argued Zha Daojiong, international relations professor at Peking University.

"These particular individuals can be vulnerable because emotionally they are supposed to be Chinese. Including myself, speaking to you, I am supposed to be speaking for Chinese interests," Zha said.

"It really is incumbent upon the headquarters and boards of these multinational companies, if they want to avoid similar problems, they must do a much better job of selecting and controlling the business behavior of their Chinese surrogates."

(Editing by Nick Macfie)