China exec probed for leaking price strategy to Rio

By Rob Taylor and Lucy Hornby

CANBERRA/BEIJING (Reuters) - A Chinese steel executive detained along with four Rio Tinto employees is being investigated for leaking China's "bottom line" on iron ore prices, a source with knowledge of the probe said on Friday.

Tan Yixin, the head of iron ore imports for state-owned steelmaker Shougang, is suspected of "revealing China's negotiating strategy" to Anglo-Australian miner Rio Tinto Ltd, the source told Reuters, requesting anonymity.

The case has stunned the global steel industry, which was already transfixed on the marathon iron ore talks. After more than six months of cat-and-mouse, China appeared to be boxed in, forced to accept Rio's price or to abandon long-term deals and risk destroying a decades-old pricing system.

The shock detentions appear to have left the price talks in limbo and cast a shadow on relations between Beijing and Canberra, whose economies have been welded together in recent years by China's huge demand for metals and minerals.

As Australia sought to avert the diplomatic row, the China Securities Journal said Shanghai's State Security Bureau accused the three local Rio staff and senior Australian executive Stern Hu of bribing unidentified Chinese steelmakers during tense iron ore price negotiations this year.

"This seriously damaged China's economic security and interests," said the paper, published by the state-run Xinhua news agency. "The activities of Stern Hu and the others violated Chinese law as well as international business morality."

Asked if negotiating strategy meant iron ore prices, the Reuters source said: "Yes, China's bottom line."

China dominates the steel industry, making as much as the next eight biggest steel-producing countries put together, and its iron ore imports, which play a major role in setting global shipping prices, have hit unprecedented levels this year.

The episode has put the industry, which relies on open market information for trading and pricing, in an "ice box," said one Chinese iron ore analyst. Several state-owned steel company executives from Beijing expected a wave of change to sweep through the sector after the investigation, which they said was much wider ranging than the five detentions so far.

"The government is not investigating Rio only, it is checking all the industry. Rio's case is not a single case, I feel the government wants to take the change to regulate the iron ore market," said one executive.

Shougang officials could not be reached for comment.

AMBASSADOR SUMMONED

China's ambassador to Australia was summoned to the Foreign Ministry late on Thursday to discuss what local newspapers called a fast-escalating crisis.

A Rio spokesman expressed surprise at the turn of events, saying the group was "not aware of any evidence that would support these allegations."

Chinese security authorities detained the four Rio employees on Sunday, alleging they were involved in stealing state secrets. They were later formally arrested.