Saving face

On July 5, when the Chinese Ministry of State Security detained Stern Hu, general manager of Rio Tinto's iron-ore division in China and an Australian citizen, it claimed he was being investigated for bribery and espionage having to do with contentious iron-ore price negotiations. On July 21, news started trickling out that Chinese Vice Foreign Minister He Yafei had told Australian Foreign Minister Stephen Smith on July 17 that Chinese officials were now emphasising only the bribery charges and not the espionage charges pertaining to national security. This was a significant shift, even though He made sure to say that commercial matters could still fall under the Chinese definition of state secrets.

It is likely that the charges against Hu will be considerably less than if he were tried for espionage, which can result in a death sentence. The most likely scenario is that Hu will be given persona-non-grata status and shipped back to Australia, unable to return to China. This is a relatively common punishment for foreigners accused of espionage, as seen in the 2001 cases of Chinese-Americans Wu Jianming and Li Shaomin, who were deported after being convicted of spying for Taiwan. It appears that China is trying to dampen the worldwide fervour raised by Hu's detention, which very quickly became a diplomatic row between Australia and China, with most of the Western business community citing China's behaviour as cause for concern.

Although this case is unlikely to change major trading relations between Australia and China, it did put a spotlight on China and even President Hu Jintao, who sanctioned the investigations. In the midst of China's economic turmoil, Hu and the central government want to recentralise economic power and emphasize that no one is immune from the current crackdown on corruption. But they also do not want to negatively impact foreign business operations.

China will not let this matter go without some form of punishment for Hu and the other three Rio employees detained. To do so would cause China to lose face amid criticism from around the world that China's actions were solely self-serving attempts to intimidate a foreign company in order to give domestic companies an edge. However, if the Australians can find a compromise – possibly getting Rio to soften its stance in the iron ore price negotiations, or ensure some investment opportunities in Australia – then it looks like China may be willing to play nice.

Another High-Profile Bribery Case

Like China, Namibia also is in the midst of an anti-corruption drive, and on July 17 authorities announced that three people had been charged with bribery in a case involving the Chinese company Nuctech. The company, which supplies security scanning systems to airports and harbours, used to be run by Chinese President Hu Jintao's son Hu Haifeng. Last year, Hu Haifeng was elevated to the position of Communist Party secretary of Tsinghua Holdings, the state-controlled company that controls Nuctech, among other firms. We know, however, that Hu was president of Nuctech at least until the beginning of April 2008, if not longer, suggesting that he may have knowledge of the incident, since the contract with the government to install the scanners at Namibian airports and ports was signed in May 2008, after Nuctech won an uncontested bid.

On July 15, Namibia's Anti-Corruption Commission arrested Yang Fan, Nuctech's African representative, along with Teckla Lameck and later her partner Kongo Mokoxwa, who were serving as consultants to Nuctech. Although details are still unclear, Nuctech was paid a $12.8 million "manufacturing deposit” in February 2009 immediately after winning the bid, and investigators say the deposit was then transferred to a company called Teko Trading CC, owned by Yang and Lameck. The money was then allegedly distributed to several individuals, including a special adviser to former Namibian President Sam Nujoma and another individual said to be very close to the current trade and industry minister (and former prime minister).

Namibian Prosecutor General Martha Imalwa is said to have travelled to Beijing to interview Hu Haifeng – as a witness, not as a suspect. Nevertheless, all Internet stories on the case are blocked in China (as are emails containing any reference to the case, according to STRATFOR sources), most likely because of the proximity of the case to the president's son. As China conducts its own anti-corruption crackdown against officials throughout the country – implicating foreigners such as Stern Hu – it would be embarrassing for the president's son to be similarly implicated for corruption in another country. It would also underscore the fact that corruption is widespread in China and infects even those at the highest reaches of power.

Stratfor provides intelligence services for individuals, global corporations, and divisions of the US and foreign governments around the world.