Author: Peter Drysdale
Today the determinations are to be handed down in the Shanghai trial of Stern Hu and his colleagues from Rio Tinto on charges of bribery and theft of commercial secrets. The case has attracted a huge amount of interest, both in Australia and internationally, because of what it might reveal about the relationship between the state, the law and the market in China. This interest exists independently of the decision as to whether the defendants (Stern Hu, Wang Yong, Ge Minqiang and Liu Caikui) are judged guilty or innocent in this particular case under Chinese law, and is justified by more strategic concerns.
China is already the second largest economy and trader in the world. It is one of the largest destinations for foreign investment in the world. It is also the largest new source of foreign direct investment globally. It is Australia’s largest trading partner and second largest source now of foreign direct investment. And Australia is China’s largest foreign direct investment destination. So the way the operation of the Chinese law impacts on those doing business with China and the way the boundaries between the market and the state are defined is of immense interest.
This week Vivienne Bath explores the implications of the trial for the standing of the Chinese legal system. She notes that, in the last 30 years, a huge amount of work has been done on improving the Chinese legal system. China now has an impressive body of law applicable to investment, business transactions and criminal matters. It has come a long way from the days when Mao effectively abolished the legal profession and turned what was left of Chinese courts into tribunals for political inquisition. Professor Bath argues that this trial could have allowed China to showcase the development of its law, and demonstrate to the world that the Chinese judicial system can provide a fair and impartial trial for all defendants. The detention, arrest and charging of Stern Hu followed the formal requirements of the Criminal Procedure Law meticulously, she argues. But, like many others, she concludes that the decision of the relevant court to effectively close proceedings meant that this opportunity was lost. This step back from judicial progress and Chinese law in the name of ‘judicial sovereignty‘ is unfortunate.
This is not merely a matter of legal interest. There are also broad economic and strategic implications. Questions about legal process and the circumstances of the trial have created anxieties among the international business community that seeks to engage with China. These anxieties extend well beyond resource trade and investment — into the information sector and other sectors, like finance, where information is important and concerns as to legal process are vital. The trial raises questions about the relationship between the state and the market in China that affect doing business broadly within China as well as outside China.
The arrest of Hu and his colleagues took place in the at a time of growing anxiety in China about the chaos of its expanding steel industry and whether it was being held hostage to rapacious international commodity suppliers. Chinalco had also just failed in its bid for a larger stake in Rio Tinto. These anxieties reflected little understanding in China of how China itself was impacting on the international commodity price hikes. But they appear to have provided the political context in which the arrest of Hu and his colleagues took place and was initially portrayed as a matter of ‘national security interest’.
Charges against Hu and his colleagues were subsequently downgraded to bribery and theft of commercial secrets but they seem inspired more by political than commercial motives. On the one hand, the iron ore salesmen, apparently on their own cognisance, received ‘good deed’ fees or ‘bribes’, which they pocketed themselves, for allocating imports to ‘preferred’ buyers. Rio did not know of these transactions and interestingly, it seems, detected no abnormalities in the placement of deliveries through their audit procedures. As Bath observes, the crimes in this respect would appear to be against Rio Tinto, which has not had opportunity to seek redress, and, presumably, would also entail the criminal responsibility of those who extended the payments. The theft of commercial secrets charges against Hu and company are another matter, and one that creates more uncertainty because of the way it has been dealt with in the Chinese court.
Professor Bath concludes that, regardless of the guilt or innocence of the defendants in the case, the trial of Stern Hu and his colleagues has sent a message to foreign business that politics, business and the law are inextricably linked. She is not alone in drawing that conclusion. The trial process is also corrosive of China’s principal international political asset: China’s beneficent impact on the global economy.
This is not a time for pretending that these issues do not exist. The impact of this event is of geo-economic and political importance, so it will not be back to business as usual in that context. But it is a time for engaging on these issues with China, from the starting point of respect for progress with Chinese law and on the basis of deep mutual interest in the large economic (and political) consequences of the commercial dimension of legal process. Despite the recent downs and ups in the Australia-China relationship, Australia is better placed that almost any other country in the Western world to gear up and begin that conversation. It is a priority in Australian foreign policy, though it will require going beyond government in both countries and patience on both sides to make real progress over a long period of time. It is a conversation that will not, in the end, be solely conducted between Australia and China. But Australia cannot afford to squib beginning it: the stakes involved are high.