Spy arrest inflames China tensions

The arrest of Australian mining executive Stern Hu is increasing tensions between Australia and China as Canberra faces mounting political pressure to ramp up its response.

Australian anger has been inflamed by reports that Hu's arrest on undefined espionage charges last week was personally endorsed by Chinese President Hu Jintao in a carefully considered decision as part of a realignment of the nation's economic power structure.

This, and the fact that Trade Minister Simon Crean was only accorded an audience with a Chinese official with a political ranking well below that of the Mayor of Shanghai to discuss Stern Hu in China, has been widely regarded as a sharp slap to Australia's face.

The growing diplomatic standoff is also undermining Mandarin-speaking Prime Minister Kevin Rudd's credentials as a man with access to Beijing, and has given new weight to critics of Chinese investment in strategic Australian resources.

Hu and three Chinese Rio Tinto officials were arrested by the State Security Bureau on charges that Beijing has said are supported by strong evidence of espionage damaging China's economic interests and security. Unconfirmed reports have said that an official of a Beijing steel company, Tan Yixin, has also been arrested in connection with allegations that apparently centre on claims Hu illegally obtained details of China's bottom line in fraught iron ore price negotiations.

Canberra is continuing to mute its response in accord with Rudd's position that the key issue remains the complex and sensitive question of Hu's welfare and eventual release.

Australian officials continued talks with Chinese counterparts in Canberra and Beijing yesterday, but have so far not been given any further details and under a consular agreement will not be able to repeat a weekend visit to Hu for another month.

Hu is not yet entitled to legal representation, and Foreign Minister Stephen Smith warned that the case was likely to be lengthy.

Smith said the Government's priorities were extracting details from Beijing on the circumstances surrounding - and the reasons for - Hu's detention, and "the importance of this matter being dealt with expeditiously".

In Shanghai, Crean also indicated that while Canberra recognised the primacy of Chinese law, Australia would "urge at the political level the importance of dealing with this first of all based on the welfare of the individual, and secondly on the expedition of process".

Neither Rudd nor Smith have spoken directly to their Chinese counterparts, despite criticism from Opposition Leader Malcolm Turnbull. Smith said life was often much more difficult and complicated than Turnbull's "rash judgments" suggested, but added that if appropriate he would speak to Chinese Foreign Minister Yang Jiechi.

But IHS Janes strategic analyst Russell Smith told ABC radio yesterday that the Foreign Ministry would rank below the Ministry of State Security, which had primacy on the case.

"Diplomacy takes a back seat when you talk about national security and in this case the Chinese are clearly saying this is a case of national security," he said.

A Sydney Morning Herald report yesterday also undermined speculation in Australia that Hu's arrest was in retaliation for Rio Tinto's decision to axe a proposed US$19.5 billion deal with Chinese metals group Chinalco in favour of a joint venture with Anglo-Australian giant BHP Billiton.

The move sparked concern in Beijing, whose previously commanding negotiating position in hardball iron ore negotiations was suddenly eroded by the contraction of its three major suppliers to two.

Sources told the newspaper the investigation into Rio Tinto that led to Hu's arrest was part of a probe that began before the miner broke off negotiations with Chinalco, and which was part of a major realignment of economic management.

They said the Ministry of State Security and the Public Security Bureau had been promoted to top strategy-making bodies, focusing respectively on international economic dealings and any subsequent domestic unrest.

"This is certainly not revenge for the Chinalco deal not going through," one source told the newspaper.

"It is part of a considered, all-of-government response to the general resources question that was made after considering the likely international response."