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Concerns over foreign investment in China -

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Concerns over foreign investment in China

Sue Lannin reported this story on Tuesday, July 14, 2009 12:14:00

PETER CAVE: The arrest of four Rio Tinto employees including Stern Hu has placed the spotlight on
foreign investment in China.

Western companies have been investing there since the former paramount leader Deng Xiaoping opened
the economy in 1978.

But does the West really understand the hungry dragon?

Finance reporter, Sue Lannin.

SUE LANNIN: Doing business with China is difficult but Western companies say you get used to the
twists and turns of policy.

Duncan Clark runs BDA China, a telecommunications consultancy in Beijing.

He says the definition of a state secret changes according to the political situation.

DUNCAN CLARK: Those sort of long timers who have been in China for five or 10 years or so are
pretty used to seeing these types of situations arising. Certainly, there's always a desire to
protect local staff from accessing, even advertently, information that might get them into trouble
and the problem being that information classification in China is very often unclear.

What might be seen to be just normal business information in another country might be deemed at a
certain point in time to be a state secret in China and again things change over time really
depending on the season, particularly in advance of big anniversaries such as this coming October
1st 60th anniversary of the People's Republic.

It is a definitely more tight time in terms of things like visas and being sensitive to
information. The old timers get used to the occasionally detraction or relaxation and the need to
protect local staff from these situations but there is always a risk that you get it wrong.

SUE LANNIN: Tim Harcourt, the chief economist at Austrade, says there is a lot of interest in
investing in China, despite the arrest of Stern Hu.

TIM HARCOURT: One thing that is important is that if you are a small investor or small exporter
maybe going in for an engineering project in an outer province, it is important to have the Trade
Commissioner or the ambassador or the Consul-General with you.

We have 15 points of contact in China and a lot of trade still with China as it is with the Middle
East and India and Latin America is still government to government.

SUE LANNIN: But are there concerns about the rule of law in China when it comes to doing business?

TIM HARCOURT: Well, for the most part things have improved in China in terms of regulation, in
terms of intellectual property. One thing that's been important is China joined the WTOs; tey had
to do so much domestic reform of their own economy and their own laws. For instance, in the labour
market, people couldn't move from Chengdu to Shanghai or Beijing under the old regime. They now can
and that is reflected as China has become more globally engaged with the rest of the world.

SUE LANNIN: Australian companies and business people with interests in China told The World Today
they didn't want to comment on the case.

One businessman says the situation will harden attitudes towards Chinese investment in Australia.

China analyst and author, Paul Monk, believes the case is linked to Rio Tinto's rejection of the
deal with Beijing backed Chinalco.

PAUL MONK: It is very difficult to believe otherwise and their lack of transparency, their studied
lack of transparency on the part of the Chinese Government which is of course standard operating
procedure for it, makes it difficult to be absolutely certain but it is very difficult to see this
as anything other than the Chinese Government actually having a dummy spit and seeking to bully Rio
Tinto and indeed embarrass the Australian Government.

You know there are some people who are saying well gee, how could we have misread China? But every
time China does something untoward like this, people say the same thing.

It is only because they have been turning a blind eye to it.

SUE LANNIN: Rio Tinto still has some long term iron ore contracts in place with Chinese steel
companies.

Resources analyst Stephen Bartrop says it's hard to say what the fall out for Rio will be.

STEPHEN BARTROP: There is no doubt that other companies like BHP, Vale and so forth would conduct
the same sort of due diligence, intelligence gathering in terms of positioning themselves for, you
know, the annual iron ore negotiations. The question is really has the Rio Tinto employees
overstepped the mark.

SUE LANNIN: Does this case put Rio Tinto on the back foot when it comes to iron ore trade with
China?

STEPHEN BARTROP: Difficult to tell and it's really is a case of, one would hope that there is a
greater justification for the arrest. It's an employee or a group of employees acting outside the
ambit. Now, if that is the case then it is really very much business as usual for Rio Tinto.

If they haven't been, then it sends a word of warning or caution across the whole industry in terms
of how you deal with China going forward.

PETER CAVE: Resources analyst, Stephen Bartrop, ending that report by Sue Lannin.