What I thought was there had been missing links in the whole drama of that detention. Each side has been left with speculations, misinformation and misunderstanding.

Another point was that it was highly likely that Stern Hu was caught in Chinese wider measures to clean up its internal management issues and in that process Stern Hu was a party to some of those issues.

There is more to be hoping for a better Chinese legal system we’d like to, and for the Chinese people too. It is them to bear that legal system much more than we Australians. The Stern Hu case, while being taken so seriously in Australia and with a lot of publicity, it is highly likely to a drop in the ocean in China as there are many more, much more serious cases that may be unfair from our point of view, or even may also be unfair within that complex and sometimes not clear legal system.

Your colleague’s argument is impractical even to raise at a bilateral discussion. Even it could be done, probably there are always ways to bypass it, I am afraid.

1. I specialise in Japan, not China (although both countries are increasingly inter-linked), so I’m not qualified or particularly interested in whether in fact China’s detention of Rio’s Hu in fact turns out to be (more or less) “retaliatory” for Australia’s invocation of the national security exception in the earlier Oz Minerals case.

I am making a more general argument, which implies that such scenarios are perhaps increasingly to be expected. That is:

(a) States (including Australia, but also China,since the late 1990s) increasingly bind themselves to allowing foreign investors to claim directly against them as host states for illegally interfering with their investments (eg through expropriation, even indirect; or for lack of “fair and equitable treatment”.

(b) This restricted room to manouevre AFTER the investment has been allowed in, to my mind, implies that potential host states will become more cautious in deciding whether to let in the investment in the first place. States often still retain broad discretion at that stage, eg ‘national security’ or ‘national interest’ – often through generic FDI legislation (applied by Australia in the Oz Minerals case), and even when an investment treaty has been concluded (eg the recent NZ-China FTA does not extend ‘national treatment’ to foreign investment regarding this ‘pre-establishment’ phase).

(c) Extra initial screening like this risks the home state later “retaliating’.

2. Measures like (c) seem “unfair” where the home state directs retaliation at a firm in the host state (like perhaps Rio) and especially a particular individual in that firm (perhaps Hu) not involved in the earlier situation (b).

It could be less unfair if the home state retaliated against the host state or even the firm involved in that initial situation (b). But we should debate whether any retaliation is appropriate. After all, the home state is simply exercising its sovereign rights based on discretionary standards (‘national interest’ etc) preserved by national legislation and/or investment treaties. And if retaliation occurs, it could lead to reciprocal retaliation, further incentives for the home state to exercise such discretions, or perhaps even steps away from including investor-state arbitration provisions in investment treaties. This would not be a good outcome for the world’s FDI system.

Hu’s innocence or otherwise is secondary to these broader concerns.

3. I haven’t heard anything about whether Rio somehow encouraged the Australian government to exercise its national security discretion to limit Minmetals’ bid for Oz Minerals. Let alone why it might want to do such a thing back in or before March. If it did, one could argue it is less “unfair” for China now to be retaliating against Rio – but what about an individual (like Hu) within Rio? And this still leaves my broader concern above about potential breakdowns not only in the bilateral relationship, but also the entire FDI system.

4. Likewise, since it was the Rio board (and shareholders) who scuttled the Chinalco bid, why retaliate against the Australian government? And rather than detaining a Rio executive, it would seem fairer to retaliate by making it clear that China will be unlikely to consider any future investment proposals by Rio to be in its own national interest. But again, is this the sort of ‘tit-for-tat’ FDI system that we want to end up with, bilaterally and world-wide? Further, whether or not Hu did violate China’s laws is not the only issue: why was the prosecution brought at this juncture? (Prosecutors in all legal systems generally have considerable discretion.)

5. Anyway, one well-known China watcher added this in the weekend’s Sydney Morning Herald (Hamish McDonald ‘China thought we wouldn’t care for Hu’, 25-6 July 2009, News Review p10, http://www.smh.com.au/opinion/china-thought-we-wont-care-for-hu-20090724-dw32.html):

“There has been speculation the arrests were a payback for the failure of Chinalco’s bid to double its stake in Rio Tinto, and/or anger at the concerns about Chinese military power raised in Canberra’s Defence White Paper.

The more that comes out in China, however, the more clearly the arrest is related to the iron ore negotiations, and a battle between State and Big Capital inside China itself.

…

[reportedly] “the Rio Tinto affair is really a struggle between the market power of China’s steel companies and the political power of China’s government planners”.

Stern Hu can look forward to up to 19 months’ detention, by recent precedent in State Security cases, before he is brought to court. He is entitled under a bilateral treaty to monthly consular visits by Australian officials, but not to a lawyer. Nor can a lawyer engaged for him carry out any investigation to prepare a defence.

When the trial is held, family and media cannot attend, diplomats may or may not be allowed to observe, witnesses are not always called and the judges are subject to direction by a Party supervisor in the backrooms. Once charges are laid, an acquittal is unheard of: the best the convict can hope for is a lenient sentence for co-operation and an early deportation on “medical grounds”.

What can be done? Not much use pointing out the failings of the Chinese legal system – best to convince leaders that their officials are inflicting massive self-damage.”

If China’s judicial process is that grim, however, I am reminded by my colleague Chester Brown and UMelbourne’s Jurgen Kurtz that Australia might well have a “diplomatic protection” claim anyway against China, for “denial of justice” towards an Australian citizen. But this leaves other major questions. As a legal matter, can jurisdiction be secured, for example in the International Court of Justice? And especially as a practical matter, would Australia be willing also to escalate the dispute in this way given its interest in a FTA and other relationships with China?