Seizing Rio Tinto employees will damage China's business
China is detaining four employees of metals giant Rio Tinto (RTP). The nation claims that the employees spied on secret information about China's steel industry. Rio Tinto sells iron and other key mined commodities to the mainland.
The odd part of the detentions is that China has not provided details about the charges against the Rio managers. It may not be a coincidence that Rio recently killed a $19.5 billion investment it planned to take from Chinese metals firm Chinalco under pressure from the Australian government, which did not want to see the company's "strategic assets" fall under Chinese control.
According toThe Wall Street Journal, "It should also be a concern for the Chinese government that if foreign businesses feel that their degree of uncertainty is high, it will change the way that foreign businesses around the world approach business in China," Chris Bowen, Australia's minister for financial services said.
And that is what it boils down to. Are companies that count on China for inexpensive finished goods and consumption of raw material by the world's most populous nation willing to walk away because the central government in the country refuses to abide by the rule of law? Many companies cannot afford to sever relationships with China, no matter how brutish the government there becomes. China is simply too large a part of their business.
But if China is allowed to avoid the use of due process, over time companies in Japan and the West will pull business out of the country, and that poses a risk to the "China miracle" of GDP expansion. China is cutting its own throat by acting as a rogue state.
Douglas A. McIntyre is an editor at 24/7 Wall St.