China formally arrests Rio Tinto employees

By Chris Buckley

BEIJING (Reuters) - Australia said on Wednesday that charges against four staff from Anglo-Australian miner Rio Tinto appeared to have been downgraded after China formally arrested the men but left aside accusations they stole state secrets.

By arresting Australian Stern Hu and three Chinese staff of Rio only on suspicion of illegally obtaining commercial secrets and of bribery, China may have opened the way to easing some tension with Australia during fraught negotiations with Rio and other multinationals over iron ore prices.

The accusations of suspected business crimes "indicate that the case has moved from the 'state secrets' area," Australian Foreign Minister Stephen Smith said in an emailed statement.

He added that "the range of possible penalties under these articles is less severe than for state secrets."

In reporting the formal arrests, China's official Xinhua news agency did not raise accusations of stealing state secrets, a sweeping charge raised in earlier reports.

The commercial secrets charge can bring jail terms of up to 3 years, or 7 years in "especially serious" cases.

"Now that he has been formally arrested we encourage China to provide Mr Hu all the protections available under Chinese law including access to legal representation," said Smith.

Rio Tinto's chief executive for iron ore, Sam Walsh, said the company also rejected the accusations of business misdeeds.

"Rio Tinto will strongly support its employees in defending these allegations," Walsh said in a written statement.

"From all the information available to us, we continue to believe that our employees have acted properly and ethically in their business dealings in China."

Walsh also urged China to let the accused men see lawyers.

Experts said China's sidelining, for now at least, of the graver espionage claims may signal an effort to reduce political friction with Australia over the matter.

"That lowers the temperature," said Jerome Cohen, an expert on Chinese law at New York University. "That puts this as a white collar crime, a commercial crime, and not espionage involving state secrets."

BIG STAKES, BAD PR

Hu and the three other members of Rio Tinto's Shanghai-based iron ore marketing team -- Liu Caikui, Ge Minqiang and Wang Yong -- were detained on July 5. Hu, a Chinese-born Australian citizen and head of the team, was accused of obtaining the Chinese steel industry's negotiating stance in iron ore price talks, sources have said. Iron ore is used to make steel.