The detention of four Rio Tinto executives in Shanghai last week is likely to rattle international investors precisely at a time when China needs foreign support as it strives to move away from an export-based, low-end manufacturing center. China’s Ministry of State Security took the four into custody and failed to inform either Rio Tinto or the employees’ families – one of the four was an Australian citizen whose government was also kept in the dark.
With allegations of pricing disputes, tit-for-tat over the recent blocking of a sale of part of the company to the Chinese state-owned Chinalco, and the lack of information coming from the Chinese authorities on the matter, foreign business working in China are beginning to voice concerns.
“It is a concern for Australians and other foreign businesspeople working in China that this could happen,” Chris Bowen, Australia’s financial services minister, said on Australia’s Channel 10’s “Meet the Press.”
No formal charges have been issued but many believe the detention is tied to a contentious negotiation over the price of iron ore, a key component in the manufacturing of steel, a commodity that China’s voracious economy devours at a massive rate. This may be why Beijing has stated that the case involves state secrets.
What can be gleamed from this still-developing situation is that many top-level executives are going to think twice before they engage in critical negotiations on the Chinese mainland, and that can in the long run, only hurt China’s development.