Doing Business in China
Research for Online Investors

by John Dalt

3/21/10

Four Rio Tinto (RTP) employees agreed to plead guilty to taking bribes in China today. A trial was to have begun this morning for the four on bribery and stealing commercial secrets. The trial would be conducted in two parts, with the bribery charges to be considered in the first part, lasting three days.  Stealing commercial secrets would be addressed later in the week.

The government accused the four of accepting about $12 million in bribes and stealing commercial secrets from Chinese owned companies in July 2009.  They were negotiating an annual contract for iron-ore pricing to state owned companies when the arrests occurred.  China wanted a 40% reduction from the previous year prices.  Rio Tinto had contracted with Japanese and South Korean firms at a 28 to 33% cut from previous year contract prices.  As RTP’s largest customer, China wanted larger cuts.  Adding to the drama of the arrests, RTP had rejected China’s offer to buy part of the company earlier last year.

The four defendants pled guilty to accepting about $1 million apiece, less than the $12 million alleged by the government. The defendants could face up to 10 years in prison on a bribery conviction. They may still face the charges of stealing commercial secrets.

RTP’s Chief Executive, Tom Albanese, met with China’s Prime Minister Wen Jiabao in Bejing on Monday.  All were smiles.  It appears Rio Tinto gave the Chinese what they wanted.  China picked up a 47% interest in a RTP undeveloped mining area in Guinea, projected to have the world’s largest reserves, and the four employees that negotiated contracts have pled guilty.

It strikes us funny that the Rio Tinto negotiators are accused of accepting bribes (from Chinese), and stealing commercial secrets. What did they want to know? How much steel do you want to buy? There have been no arrests made of persons that paid the bribes. We expect to see the four employees released after a ‘saving face’ period, when they will have to leave the country. And no one will ever be arrested for paying the bribes.

Negotiations are ongoing for the next round of iron-ore pricing.  China again wants lower pricing than Japan and Korea.  Miners, led by RTP, want price hikes of as much as 90 percent.

Google China is redirecting search enquires to Google Hong Kong as of today.  Google has announced they "intend to continue R&D in China and also maintain a sales presence there."

The American Chamber of Commerce released results of a survey showing 38% of foreign companies in China feel shut out under new government policies promoting homegrown technology.  The results show a steady worsening environment in China for foreign companies.  Only 23% of respondents felt unwelcome in 2008.

Our quote today is from Congressman Alcee Hastings.  In case you don’t know his history, Alcee was appointed to the Federal Bench by President Jimmy Carter.  He was impeached and convicted by the Senate to be removed from his position as a Federal Judge for accepting a six figure bribe.  Alcee returned the money.  He was disbarred, but found not guilty in Federal Court of accepting the bribe.  After being removed from office as a judge by the congress, he ran for congress where he has now served since 1992.  He is a prominent member of the House Democratic leadership and sits on the House Rules Committee, the Permanent Select Committee on Intelligence, and subcommittee on Oversight and Investigations.  His girlfriend works in his congressional office, at a salary of $160,000 per year.

“There ain’t no rules around here - we’re trying to accomplish something. And therefore, when the deal goes down, all this talk about rules, we make ‘em up as we go along…”

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top