Murky world of corruption in China | BBC News

Bribery and other forms of corruption are problems often encountered by foreign businesses operating in China.

This can result in companies providing clients with expensive trips abroad, lavish meals and red envelopes stuffed with money.

But not all businesses get drawn into this murky world; some say they abide by the same high standards they observe elsewhere.

And one foreign business advisor said firms that supply good products and services will always do well – even if they refuse to be corrupt.

The use of bribery in the business world in China has come into sharp focus because of the trial involving four executives working for the Anglo-Australian mining firm Rio Tinto.

The four were sentenced in Shanghai to between seven and 14 years in prison for taking bribes and stealing commercial secrets.

But how much of a problem is bribery for foreign firms operating in China?

One British businessman, who did not want to be named, said it was a big problem, particularly in China’s smaller cities.

He told the BBC of one occasion when he was trying to set up a joint venture company with a Chinese partner in Shandong province.

Negotiations had been going on for weeks, without any success, he said. Then, at one meeting, he was asked to step outside for a chat with an official.

“He said all the problems could be overcome – so I asked him how. He said it could be done if I gave him 1m yuan ($146,000: £98,000),” said the businessman.

via BBC News – Murky world of corruption in China.

Hugo Restall: The Rules in China – WSJ.com

After a Chinese court sentenced four executives of Australian mining company Rio Tinto to lengthy prison terms for bribery and stealing commercial secrets yesterday, Canberra was quick to respond. Foreign Minister Stephen Smith pointedly stated, “As China emerges into the global economy, the international business community needs to understand with certainty what the rules are in China.”

In the eight months since Australian citizen Stern Hu and his Chinese colleagues Wang Yong, Ge Minqiang and Liu Caikui were arrested, we've learned a great deal about the lack of certainty and rules not only in China, but also in the global commodities trade. Some of that is China's fault, but hardly all of it. The Australian government and Rio Tinto must share the blame for lack of transparency and failing to play by the rules.

Foreign media coverage of the arrests and trial has focused on whether the Chinese authorities pursued this case for political reasons. Remember that early last year, cash-starved Rio Tinto angered China by inviting Aluminum Corp. of China, or Chinalco, to take a $19.5 billion equity stake and then backing out of the deal under a combination of shareholder, government and public pressure. Rio was also driving a tough bargain in iron-ore price negotiations with Chinese buyers. Many observers speculated that the four executives were pawns in a high stakes game of tit-for-tat orchestrated from Beijing.

Certainly the timing of the case makes such suspicions inevitable. But the reality is probably more complicated. The Chinese justice system may be manifestly unfair, and once it gains momentum a guilty verdict is a foregone conclusion. Yet Rio itself put forces in motion that led to four men losing their freedom.

It all started with the boom in the global iron-ore market in the early 2000s. That’s when China’s steel industry embarked on a massive expansion of capacity, turning the trade in ore from a buyer’s market to a seller’s market. China’s large state-owned steelmakers bought at the benchmark price negotiated by Japanese and Korean mills, while smaller firms had to pay the higher spot price. This created an incentive for arbitrage and corruption, but unfortunately both the Chinese government and the mining companies were slow to take account of this in their internal controls.

via Hugo Restall: The Rules in China – WSJ.com.

Rio Tinto Executive Admits to Taking Two Bribes – NYTimes.com

Stern Hu, an executive at the British-Australian mining giant Rio Tinto, has said in court that he accepted two large bribes in late 2008 and early 2009 totaling about $1 million from Chinese steel mills in exchange for agreeing to sell them long-term supplies of iron ore.

The confession came at the high profile trial here of four Rio Tinto employees charged with accepting $12 million in bribes and also with stealing commercial secrets from Chinese companies, according to Jin Chunqing, a lawyer representing Mr. Hu, an Australian national.

The hearing was generally closed to the public, and details of the proceedings have been slowly trickling out. The details of these two bribes and who they came from had so far gone unreported until Friday.

via Rio Tinto Executive Admits to Taking Two Bribes – NYTimes.com.

China Indicts Rio Tinto Executives

Chinese prosecutors have indicted four executives of Anglo-Australian mining giant Rio Tinto.

The No. 1 branch of the Shanghai People’s Procuratorate charged the executives Wednesday with bribery and infringing on trade secrets. All four were arrested last year on suspicion of industrial espionage, but no spying charges were brought Wednesday. The executives, led by Australian citizen Stern Hu, were held without being formally charged since July, as Chinese authorities completed their investigation.

Citing court statements, the official Xinhua news agency said prosecutors claim the executives took “advantage of their position to seek profit for others, and asking for, or illegally accepting, huge amounts of money from Chinese steel enterprises.” As such, Xinhua reported, the executives allegedly “lured the Chinese enterprises’ heads with promises, or through other illegal means, to obtain the steel companies’ commercial secrets on multiple occasions, causing “extremely serious consequence[s]” for the companies.”

Rio Tinto is one of China's largest suppliers of iron ore. The basis of the case is the suspicion that the company may have resorted to bribery and acquisition of trade secrets to inflate by billions of dollars the price of ore sold to Chinese companies, many of which are state-owned.

The arrests and the suspected political motivations behind them have caused widespread concern among Western businesses operating in China, “raising fears that other executives could be accused of bribery or arrested because of commercial disputes with Chinese companies,” The New York Times reports.

via China Indicts Rio Tinto Executives.