The Rio Tinto Case Shows the Lure and Dangers of China

China business
China business

When China's government accused four Rio Tinto executives -- including one Australian -- of collecting commercial secrets and accepting bribes last year, it looked like it was going to be a juicy story. On Monday, all four execs were given severe jail sentences, but we still know little more about the case than we did back in July, 2009, when the mining giant's executives were charged.

Still, one thing is certain: Making an example of a foreigners isn't likely to encourage multinational businesses from entering or staying in the market. But perhaps that's the point.

Unusual Case

Beijing has been trying to crackdown on bribery and corruption for some time now -- back in 2007 it executed the chief of its food and drug watchdog for accepting bribes and compromising Chinese exports. But this may be the first time China has aggressively pursued a high-profile case involving an expatriate businessman and not government officials.

"The Chinese have been prosecuting high-level cases [of bribery] at intervals -- they execute a phenomenal number of people in general and specifically for bribery -- but it's usually a case where a government official accepts money to approve to a project. [The Rio Tinto case] is a very different situation. It's a case of commercial bribery, of one company accepting bribes from another. Nobody's quite sure what's behind it," says Alexandra Wrage, president of TRACE International, an antibribery and corruption nonprofit based in Annapolis, Md.

The Rio Tinto verdict also coincidentally came a week after Google (GOOG) said it would shutter its search engine in China and GoDaddy, a domain registration site, said it would no longer register new sites in China.

Secrecy Surrounding Trial

While government regulators have made splashy attempts to show their seriousness about reducing bribery, corruption remains a fact of life in China. "I don't think it's a normal part of business practices," says Wrage. "But having said that, it's very prevalent. It's difficult to operate a business in China without confronting it very frequently."

Just last week, China Petroleum & Chemical admitted that it had accepted bribes from Daimler (DAI). But in the same breath it conveniently urged the government to crackdown on "multinational companies and [law-breaking] business people who dare to challenge Chinese law."

Sure, if expatriate executives doing business in China don't "dare to challenge Chinese law," there should be no problem. But there's no way of knowing whether justice was really carried out in the Rio Tinto case, given that reporters were banned from attending much of the trial. And it's not clear whether China had an ulterior motive in pursuing the case. (Many speculate, for example, that the charges were made in retaliation for Rio Tinto's refusal to accept a $19.5 billion investment from state-run Chinalco.)

"In holding part of the trial in secret, China, I believe, has missed an opportunity to demonstrate to the world at large transparency that would be consistent with its emerging global role," Australian Prime Minister Kevin Rudd told reporters. A Chinese foreign ministry spokesman called the remarks "irresponsible."

Henry Kissinger Makes Nice?

In the meantime, Rio Tinto, which initially defended its employees' conduct, has reportedly canned all four executives and distanced itself from them. Still, the mining giant hasn't been spooked out of China. Rio Tinto reportedly asked former U.S. State Secretary Henry Kissinger to help it make nice with Beijing. The company had also asked Kissinger to help them mend relations with China after Rio Tinto turned down the $19.5 billion investment from Chinalco.

"China has a very robust economy with a lot of opportunity and yet an opaque and difficult, nontransparent bureaucracy. It keeps foreign companies baffled," says Wrage. "I think executives of multinational companies have been watching this case, and I think it gives them real concern about whether there's more behind the antibribery efforts of the Chinese that isn't apparent to us."