Shock and ore: Rio discovers China's downside

CANBERRA - China offers a literal wealth of opportunities for Australia and its people. But at what cost?

The Asian tiger economy with its vast market of 1.3 billion people has been a commercial dream for Australian companies over the past few decades as Beijing threw open its doors to the international community.

With its emerging middle class and a growing acceptance of capitalism, it's become easy for people - and Governments - to forget that China is still a communist state.

But the arrest of Australian Rio Tinto executive Stern Hu on suspicion of spying and stealing state secrets has turned the spotlight on the often-opaque nature of doing business in the emerging economic powerhouse.

While the financial rewards can be great in the emerging economic powerhouse, here are risks to doing business in a nation without the same degree of transparency as the developed world.

This episode will be a real test for the Rudd Government, which will have to prove it has the mettle and maturity to stand up to Beijing.

It dodged a bullet over the controversial Chinalco-Rio Tinto deal but it may not get off so lightly this time, with the signals from Beijing suggesting it means business.

Hu isn't the first businessman to fall between the cracks of communism and capitalism in China.

The most renowned Australian case was James Peng, who was arrested by Chinese officials in 1993 on trumped up fraud charges and sentenced to 16 years' jail.

Canberra viewed the case as a "serious irritant" in relations with Beijing and after extensive Government lobbying, Peng was released in 1999.

Over the years, several North Americans have found themselves detained or imprisoned over allegations of fraud, spying or the amorphous charge of "activities harmful to the security" of China.

Australian officials still haven't been able to see Hu, the Shanghai-based general manager of Rio Tinto's Chinese iron ore business, who was detained by China's Ministry of State Security on Sunday.

But officials were told they would be given access to him yesterday.

The confusion's been compounded by side issues involving Rio Tinto, its iron ore business and China.

Beijing wasn't impressed by the Anglo-Australian miner's recent decision to pull the pin on a $31.5 billion deal with China's state-owned Chinalco, which would have needed Government approval to go ahead.

And this year's annual iron ore negotiations between Rio Tinto and Chinese steel mills - always a testing time - have been more contentious than normal.

Canberra rejects speculation the commercial tensions are behind the arrest, though it admits to being "perplexed" by the allegations.

For the moment, Prime Minister Kevin Rudd, a Mandarin-speaker and an acknowledged Sinophile, is keeping at arms-length from the issue, leaving the lobbying to foreign affairs officials.

Rudd has won acclaim, at home and abroad, for his strong Chinese credentials but must be aware it is a double-edged sword.

He has been accused of being too close to the Asian superpower, spruiking for Beijing to join the International Monetary Fund and keeping meetings with Chinese officials secret.

And the breadth of relations means the room for discord, and disharmony, is substantial.

Much of the time, the huge trading ties overshadow the rest of the relationship.

China's insatiable appetite for natural resources - particularly iron ore - helped underpin Australia's booming economy, and its growing middle class provides lucrative opportunities for international companies.

Human rights proponents suggest the potential financial gain means Canberra and the Australian business community tiptoe around the sensitive issue of how China treats its citizens because of the potential to anger Beijing.

The Chinese Government certainly makes its displeasure known when Australia, as it sees it, steps out of line.

This includes when political leaders meet the Dalai Lama or speak out about Tibet.

Recently, China sent a stern message that it wouldn't be happy if Australia were to agree to a request from the United States to resettle several Uighur detainees being held at Guantanamo Bay.

Canberra insists the crucial economic ties won't, and don't, stop it from playing it straight with Beijing when necessary.

But the next few days might show there's a higher price to doing business behind the Bamboo Curtain.

- AAP