It’s the case all foreign investors into China should be watching: Rio Tinto v China.
After nine months of very little news but much sabre rattling, the pace has stepped up noticeably. As Bloomberg reported on Monday:
Australian Stern Hu, Rio Tinto Group’s iron ore executive in China, pleaded guilty to bribery charges in a Shanghai court, said the lawyer for one of his colleagues facing the same accusations.
Bear in mind that no Western press have been allowed into the courtroom, and that the bribery charges will remain in dispute on Tuesday. Still, as Reuters continued:
“Stern Hu definitely pleaded guilty (to the bribery charges)”, Tao Wuping, the lawyer for co-accused Liu, told Reuters after the hearing.
Tom Connor, the Australian Consul General in Shanghai who attended the hearing, told reporters that Hu was accused of taking bribes worth 1 million yuan ($146,500) and $790,000.
“Mr Hu made some admissions concerning some of those bribery amounts, so he did acknowledge the truth of some of those bribery amounts,” Connor said.
The case continues, as they say.
But FT Alphaville has to question Reuters on its view of why this case matters to foreign investors:
The case has thrown a spotlight on China’s often murky marketplace, where legal boundaries can be vague, creating pitfalls for businesses seeking profits from the world’s third-biggest economy.
Hmm. Not quite. If anything, the Rio Tinto case perhaps shows that ‘legal boundaries’ in China are becoming less vague with time, even if they remain stringent.
Of course, FT Alphaville has previously noted the coincidence of the Rio Tinto arrests with China’s negotiations with its iron ore suppliers, as well as other odd moves by officials in the case. And that’s to say nothing of wider institutional problems in Chinese law and justice, as Reuters investigates in another piece on the Rio Tinto affair.
But the current case has dealt with charges of bribery and abusing commercial secrets, with which (FT Alphaville would presume) few businesses in China would want to try their luck with in the first place. As one academic argued to Bloomberg:
“What they are interested in is a clean business environment generally and that puts you on notice that giving or taking bribes is not an acceptable way of doing business in China,” said Associate Professor Vivienne Bath at the Sydney Law School at the University of New South Wales. “That’s the message that they would want to have come out of this case.”
And do note that employees at Chinese steel companies were also charged in relation to the Rio Tinto case. How their cases will proceed will tell us more about whether Chinese law is serious about treating citizens and foreigners equally, but it’s a reasonable start.
In any case, China’s evolution towards ‘Western’ legal standards may not lessen problems for firms investing there. As China Law Blog writes of a new Tort Law to be introduced in July 2010:
…many foreign investors are under the misapprehension that only the position of the local and national government officials and regulators matters in their activities in China. As long as the government is not threatening fines or other administrative sanctions, they believe they are “safe.” However, the essence of the tort system is that it gives power to the private person (business or individual) to take action — the government’s position on the issue should be irrelevant…
All tort law is a balance between encouraging business activity and protection of the injured persons, and this latest piece of legislation — like many recent Chinese statutes — falls very much in line with favoring individual interests over business. Chinese tort law is heavily weighted towards protection.
Doing legitimate business in China is no longer just about watching cases like Rio Tinto for clues, then, more tracking the emerging laws of an emerging market. Caveat litigator.
Related links:
Rio arrests: China’s perverse ‘PR’ campaign – FT Alphaville
The realpolitik of mining – FT Alphaville
China’s Rio Tinto arrests. Everyone just move along… - FT Alphaville
Wahaha billionaire has last laugh at west – FT