(C) AUSTRALIAN CONSUL GENERAL'S BRIEFING ON THE RIO TINTO

C O N F I D E N T I A L SECTION 01 OF 06 SHANGHAI 000321

NOFORN
SIPDIS

STATE ALSO FOR EAP/CM, EAP/ANP, INR/EAP
USDOC FOR ITA DAS KASOFF, MAC/OCEA - SZYMANSKI

E.O. 12958: DECL: 7/19/2034
TAGS: PREL PGOV ECON EINV CH AS
SUBJECT: (C) AUSTRALIAN CONSUL GENERAL'S BRIEFING ON THE RIO TINTO
DETENTIONS IN SHANGHAI

REF: A. A) CANBERRA 631

B. B) BEIJING 1966

C. C) BEIJING 592

D. D) CANBERRA 537

E. E) 08 SHANGHAI 477

F. F) SHANGHAI P/E - INR/B E-MAIL, FEBRUARY 18, 2009

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CLASSIFIED BY: Christopher Beede, Deputy Principal Officer, U.S.
Consulate General, Shanghai, Department of State.
REASON: 1.4 (b)


1. (C) Summary. Australian diplomats in Shanghai have not
passed judgment on whether the detention of four Rio Tinto
employees here (refs A-B) is retaliation for the failed Chinalco
acquisition of Rio Tinto (refs C-D) or for reasons relating to
an impasse in iron ore contract negotiations. The Shanghai
Bureau of State Security (SBSS) is involved in the case, and has
closely complied with bilateral consular agreement requirements
relating to notification and access to the detained Australian
citizen, Stern Hu, among the four detainees, and with respect to
having search warrants and receipting those documents and
equipment they have removed from Rio Tinto's and Mr. Hu's
premises. The four Rio Tinto employees have not yet been
formally charged, and may be held as long as thirty-seven days
without formal charges and without legal representation. The
investigation focuses on "illegally obtaining state secrets,"
which SBSS officials have pointedly informed the Australian
Consul General is not the same as "espionage." Housed in a
regular detention center in Shanghai's Pudong District, Hu has
been warned not to discuss the specifics of his case with
anyone, including other detainees and his visitors (such as
Australian consular officials). Television news broadcasts at
the prison have not been shown in the detention center since
Hu's arrival on the evening of July 5, but whether that relates
to the specifics of his case or detention officials not wanting
detainees to know about the riots in Xinjiang is an open
question, according to the Australian Consul General in
Shanghai. Several U.S. businesspersons in Shanghai have
expressed concern about the Rio Tinto case and the vague
definition and potentially broad applicability of Chinese state
secrets laws, but one downplayed any Chinese focus on Rio Tinto
per se, arguing instead that the foreign company has been caught
up in the first steps by the Central Government to clean up a
notoriously corrupt and largely state-owned steel industry. End
summary.


2. (C) Australian Consul General in Shanghai Tom Connor
provided an hour-long briefing about Rio Tinto case developments
to DPO on July 16 in his Consulate's secure conference room.
Commerce Secretary Locke's scheduled arrival that evening in
Shanghai and the issue having been discussed by Secretary Locke
in a television interview in Beijing earlier in the week were
reasons cited for acceding to our request for a briefing.
Connor prefaced his detailed day by day account by noting the
case had already become a political issue in Australia, negating
Chinese exhortations to not politicize the case; that the case
remained extremely sensitive; and that the outcome of a such a
case involving the Ministry of State Security and its Shanghai
Bureau of State Security is impossible to predict. The
sensitivity of the case is such that the Consulate General was
under instruction to brief rarely and usually at the head of
post level.

Search Warrants Executed, Four Rio Employees Detained


3. (C) On Sunday, July 5, the Australian Consulate General in
Shanghai received two telephone calls in quick succession at
about six p.m. informing them that Australian citizen Stern Hu
of Rio Tinto's Shanghai office had been detained by officers of
the Shanghai Bureau of State Security, one from a Rio Tinto
colleague and one from the Department of Foreign Affairs and
Trade in Canberra, which had been called by Rio Tinto, which had
received calls from Hu's family. The Australian Consulate
General's understanding is that earlier on July 5, officers of
the SBSS had contacted a Rio Tinto employee responsible for
liaison with the building management at the commercial building
in which Rio has office space and compelled that employee - and
his office keys -- to come to Rio's building. There, SBSS also
produced a building management staff person and provided a duly
executed search warrant and had the Rio and building manager
staff persons open Rio's office. The SBSS personnel who entered
Rio's premises only searched for offices within the suite, just
those of the four employees taken into custody that day. SBSS

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personnel removed documents, computer disks, USBs and laptops
before concluding their search, leaving behind a signed receipt
of the items they removed. At the same time as the office
search, SBSS officers took Stern Hu into custody at his Shanghai
house, and again executed a search warrant, removing documents
from Hu's residence. Hu and the SBSS departed Hu's residence in
the late afternoon. Three other Rio employees in Shanghai, all
Chinese citizens, were also detained by the SBSS on July 5. Hu,
born in China, became a naturalized Australian citizen in the
mid-1990s, Connor explained. The Consulate contacted the
Shanghai Municipal Government Foreign Affairs Office (FAO;
contact point in case of arrests of foreign citizens) where the
FAO duty officer said FAO knew nothing of Hu's case. The
Consulate General requested access to the Australian citizen.


4. (C) On Monday, July 6, the Australian Consulate again
contacted the FAO to request consular access to Hu, and again
the FAO replied that that office knew nothing about Hu's
detention. The Australians reminded the FAO that in accordance
with the terms of the bilateral consular agreement, notification
of an arrest must be made within three working days and access
to the detainee must be allowed within two days of the
notification. The Australian Embassy was making simultaneous
approaches to the Ministry of Foreign Affairs in Beijing. As
information began to be available to confirm Hu's detention, a
message was passed that the SBSS noted that the first working
day of Hu's detention was Monday, July 6, not Sunday, July 5.
With the Australian Trade Minister scheduled to be in Shanghai
from Friday evening, July 10 until 3 pm on Saturday, July 11,
the Australian Consulate General in Shanghai requested highest
level local meetings for the Minister to raise concerns about
the case and to urge transparency and quick resolution of any
formal accusations. The Trade Minister had previously twice met
current Shanghai Party Secretary Yu Zhengsheng, and that was the
Consulate's first request, with Mayor Han Zheng as the requested
alternate. (As Party Secretary, Yu is the more powerful of the
two officials.)

A Visit to the Consulate by the SBSS


5. (C) At midday on Wednesday, July 8, two SBSS officers came
to the Australian Consulate General (on the twenty-second floor
of an office building on a posh stretch of Shanghai's Nanjing
West Road) and presented a third-person note formally informing
the Consulate General of the detention of Australian citizen
Stern Hu on suspicion of illegally acquiring state secrets. At
this meeting, the SBSS officers explained that illegally
acquiring state secrets is not the same offense as espionage, a
word that had appeared in several media reports by this time.
The SBSS also provided the Consulate with an SBSS telephone
number. The Australians asked the SBSS officers about how to
arrange consular access to the detained citizen, should they
just telephone the SBSS? After a pause, the SBSS officers
replied that a third-party note addressed to the SBSS should be
submitted through the municipal FAO. The Australians
highlighted to their visitors that consular access is required
and urged a speedy resolution to the matter, points repeated
shortly thereafter in a note through the FAO. The SBSS officers
departed.

Consular Access Granted, Though TV News Is Verboten


6. (C) By early afternoon on Thursday, July 9, the Consulate
General had received notification that consular access to Hu
would be permitted at 10 am on Friday, July 10 at a detention
center in Shanghai's Pudong District. The Consul General would
escort one of his consular officers to the meeting. Meanwhile,
difficulties with arranging a highest-level local meeting for
the imminent visit of the Trade Minister were coming to a head.
The FAO informed the Australians that neither the Party
Secretary nor the Mayor would be available to meet the Trade
Minister on the Saturday of his brief visit to Shanghai.


7. (C) CG Connor and one of his consular officers reported to
the detention center as agreed at 10 am on Friday, July 10, to
visit Stern Hu. The appointment did not begin until nearly 11
am, however, because another Australian resident in the
detention center for whom consular access had been arranged
prior to Hu's detention was brought to the meeting room first,
and only at about 1020 am. This other Australian citizen
confirmed that Stern Hu was among their midst, Hu appeared to be
well, and informed his diplomats that all residents had been

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warned not to discuss the particulars of Hu's case with him,
though they may speak with him about other matters. This other
Australian citizen also noted that television newscasts at this
detention center have been blacked out since the evening that Hu
joined their midst, Sunday, July 5. CG Connor said too little
information is available to judge whether the news blackouts in
this detention center have anything to do with Hu's sensitive
case, suggesting that coverage of the rioting and deaths in
Xinjiang that began on July 5 could be another reason for
blocking news broadcasts in the detention center.


8. (C) Hu, whom CG Connor said he was already reasonably well
acquainted with, appeared to be and said he was in good health,
with no outstanding medical or dietary issues. Two detention
center officials were present for the consular access meeting
with Hu, as was customary practice in the Australians'
experience, and they appeared to be of the low to middle level
ranks as in the past, nothing unusual about them. However, they
were joined by a third official, an interpreter, whom CG Connor
described as clearly being an SBSS member. This interpreter had
informed the CG and his consular officer prior to the start of
their interview with Hu that they were not permitted to discuss
the details of Hu's case. Hu told his CG and consular officer
that he, too, had been informed not to discuss his case. Hu
said he was kept in a regular cell, able to participate in
exercise sessions and had access to reading materials. The
diplomats presented Hu with a list of lawyers. Hu said his
application two days earlier for legal representation has been
rejected. (The SBSS has confirmed this earlier request and
rejection to the Australian Consulate General, noting that the
case is still in an investigatory phase during which legal
representation need not be granted.) Hu said he did not well
understand the legal system and when he might obtain legal
counsel. The Australian consular officer explained that the
investigatory phase of a case may last up to thirty days, during
which the detainee is not entitled to legal representation, and
the detaining authority may request an extension of another
seven days, only after which must a formal charge be brought and
the accused have a right to legal representation. The
interpreter nodded his head to affirm this explanation as the
consular officer delivered this explanation.


9. (C) The detention center officials confirmed that the
Consulate General would have usual consular access to Hu, every
month on about the same date of the month. So the next consular
visit to Hu should occur on or about August 10.


10. (C) Continuing efforts on Friday, July 10 to secure a
highest level local meeting for the Trade Minister went for
naught. The FAO instead offered an appointment for the Trade
Minister with Shanghai Commission of Commerce (SCOFCOM) Director
Sha Hailin. Sha and SCOFCOM were actually the Minister's local
hosts for the Minister's visit. (Bio note: Sha has held
government and party positions in Shanghai, as well as working
on Congressional affairs at the Chinese Embassy in Washington
early this decade. From Washington he went to Dublin as Chinese
Ambassador to Ireland. Back in Shanghai, he also concurrently
is a Deputy Secretary-General of the Municipal Government. More
on Sha Hailin in refs E and F. End bio note.) After the Mayor
and a Vice Mayor, Sha is the third-highest ranking municipal
official with explicit responsibilities for foreign trade
issues, CG Connor noted. Connor also noted that FAO Deputy
Director General Fan Yufei and his colleagues seemed more
quickly to recognize the political sensitivities of the Rio case
than the staffers at SCOFCOM prepping Sha. Connor briefed his
Minister upon arrival Friday night about the offered Sha
appointment, which the Minister accepted. Politicization of the
case in Australia by the opposition made it necessary to raise
the Rio detentions while in Shanghai.


11. (C) Connor described his Minister's July 11 meeting with
SCOFCOM Commissioner Sha as a good one, with the Minister
stressing (1) need to deal with the case quickly, establish
family access in addition to the just-granted consular access,
and allow for legal representation on behalf of Stern Hu as soon
as possible, and (2) politicization of the case back in
Australia required expeditious attention to resolving the case.
Sha said he understood the Minister's points, that Hu's case
would be handled in accordance with Chinese law, and that he
would ensure that the Minister's comments were passed to senior
leaders in Shanghai and Beijing. Subsequent to the meeting,
Connor continued, an Australian journalist heard that Sha ranks

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sixteenth overall in the Shanghai Municipal Government
hierarchy, and published an unhelpful article saying the
Minister had only been able to meet with a "junior official" to
raise the case of the detained Australian citizen. Connor has
since explained to the to inquirers that Sha is the
third-ranking trade official in Shanghai and furthermore was the
official Shanghai host for the Minister's visit, so the Minister
agreed to meet with Sha to raise Hu's detention. Connor
commented that Australian officials have no knowledge of any
broader message intended by China by the stated unavailability
of Party Secretary Yu and Mayor Han to meet the Minister; it
might really have been a Saturday scheduling difficulty.
Australian Prime Minister Rudd also had raised concerns about
Hu's detention in a pull-aside meeting with Chinese Vice Foreign
Minister He Yafei on the margins of the G-8 meeting in Italy,
Connor added. Shanghai FAO and SCOFCOM officials both say that
Sha passed a report of his meeting with the Trade Minister to
higher officials, with SCOFCOM officials telling the Australian
Consulate General that decisions about Hu's case are now a
Beijing matter.

Why Rio Tinto and Why Stern Hu?


12. (C) CG Connor expressed puzzlement about what level of the
Chinese Government had directed State Security to pursue a case
against Rio Tinto. He dismissed reports claiming President Hu
Jintao had personally approved moving forward with the case.
Connor said there is now way to ascertain whether Rio's legal
woes are an intended payback for Chinalco's failed bid to
acquire Rio. He noted that Australia's Foreign Investment Board
would have had to approve Chinalco's acquisition and
uncertainties about how the Board would have decided because
Chinalco is a state-owned enterprise and Rio a key asset in the
Australian economy. Connor noted that Rio had taken on a
considerable amount of debt in fighting off a takeover attempt
by BHP, and when commodity prices crashed, Rio needed a white
knight to provide financing. Chinalco stepped forward as the
only company with sufficient cash on hand. However, the
Australian investment review and approval process in this case
had already exceeded six months, during which commodity prices
and the Rio share price had recovered sufficiently such that Rio
no longer needed Chinalco's money, so the transaction was called
off by Rio before the investment review process reached a
conclusion. Even if Rio's problems are not a Chinese payback
for Chinalco's failed bid, that failed transaction would have
given no reason for delay for anyone in the chain of approvals
for launching the investigation of Rio Tinto.


13. (C) Connor noted many press reports linking Rio's and
Stern Hu's troubles to the 2009 iron ore negotiations. All
reports showed that China's steel industry and iron ore
suppliers had been nowhere near agreement, when word arrived
that the Japanese steel industry had accepted a 33 percent price
cut when China wanted an even larger price reduction. CISA, the
China Iron and Steel Association trade group, participates in
the iron ore negotiations alongside the Chinese steel companies,
but Connor said the steel company representatives (specifically
naming China's largest steel company, Shanghai-based Baosteel,
as an example) say - when the CISA officials are outside of the
negotiating room - that they will continue to do business as
usual with iron ore suppliers. CISA lacks a reason for its
existence without the annual iron ore price negotiations, Connor
asserted, noting that iron ore is the only commodity subject to
this annual, worldwide negotiation.


14. (C) The Chinese Foreign Ministry spokesman late in the
week of July 13 made reference to the iron ore negotiations,
Connor said, with the MFA referencing information provided by
the SBSS. The Australian Consulate General contacted the SBSS
to request a copy of the information provided to the MFA. The
SBSS replied that the MFA was responsible for how that Ministry
construed the information provided by the SBSS, and in any
event, the information could not be shared with the Australian
Consulate General because it was a state secret. Connor said
this exchange should be a warning to everyone about China's wide
and non-transparent definition of a state secret. He found it
disturbing that the Chinese press is publishing allegations with
some details that are not being made available to the interested
parties (Australian Embassy and Consulate General and Rio
Tinto). Connor predicted that the Rio Tinto case will pose big
problems for China to be seen by foreign traders and foreign
investors as a predictable and transparent business destination.

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15. (C) Connor stressed that the selection of Stern Hu as one
of the investigation targets at Rio was significant, in that Hu
is a native of China, and thus investigatory bodies may believe
he is more vulnerable to pressure. Connor noted that Rio's
Managing Director in Shanghai is a naturalized American citizen,
but the MSS/SBSS did not choose him as its target, and the
United States is not a major supplier of iron ore to China in
any event. Connor defended Hu's conduct, noting that commercial
negotiators around the world need to gather information about
the opposite side's needs, hopes, and expectations, and ability
to pay, so that possibilities for agreement can be identified.
Surely every company involved in natural resources supply to
China must likewise have information that China could deem to be
"state secrets" if their business staff have worked hard. Rio,
like other Australian companies and even the Australian
Government, does provide, transparently, expenses paid trips to
Chinese steel industry executives to visit Australian mines and
ports, as they do for Chinese Government officials and as do
their competitors in other parts of the world. Connor wondered
what specific practice, other than doing his job of learning
about the other side, would be the basis of a formal charge
against Stern Hu. Probably only in China could the normal
conduct of business operations and business negotiations put one
at peril of a criminal charge relating to state secrets. Connor
further observed that while all businesses in China must conduct
themselves in accordance with Chinese law, China is a global
power and a global trader and should reconcile its business
practices and business regulations to the ways that business is
conducted worldwide. Iron ore is a basic commodity, not
missiles, chemical weapons or advanced munitions. Commercial
secrets do not usually or necessarily constitute state secrets.
China has to explain how a criminal charge relating to iron ore
(if that is the basis of the case) is somehow related to the
state, Connor said.


16. (C) So, as of July 16, Australian officials were
delivering public messages about maintaining the consular
aspects of the case in accordance with the applicable bilateral
agreement, urging quick resolution of the case, allowing for
legal representation at the earliest date and urging that family
visits to Hu be allowed. Privately, Connor continued,
Australian officials are telling Chinese officials that the case
is already a political issue at home that has the potential to
seriously disrupt the bilateral relationship, and that the case
will present problems for China because the case will adversely
impact the international business community's perceptions of
China. As of July 16, Australia and China were not yet at a
stage of proposing solutions to Rio's case. With the Ministry
of State Security involved, China may be painting itself into a
corner. Connor said some Chinese press items have already
described Stern Hu and his fellow Rio detainees as guilty of
crimes when none of them has even been formally charged with any
particular offense.

U.S. Business Views in Shanghai


17. (C) A number of U.S. businesspersons in Shanghai commented
to Consulate officers about the Rio Tinto case during the week
of July 13. Several Governors of the American Chamber of
Commerce in Shanghai were likeminded in comments on July 14 that
the Rio Tinto case will harm China's prospects as a trading
partner and destination for investment because China does not
well define what is a state secret and appears to be able and
willing to define a state secret after the fact or after the
act. They wondered whether state-owned enterprises operate on a
level playing field with other enterprises, domestic or foreign,
if their interests in negotiations have the additional leverage
of state secrets protection and possible prosecution of their
partners. A U.S. executive (head of China operations) for a
large U.S. manufacturer (and AmCham Shanghai member) had a
different point of view when speaking before the AmCham's July
17 breakfast meeting with Commerce Secretary Locke: he believes
that Rio Tinto is caught up in a Central Government attempt to
clean up the notoriously corrupt Chinese steel industry, the
largest players of which are predominantly state-owned.
Irrational business practices (importing far too much ore and
coke to then re-sell on the spot market at higher prices to
smaller, private mills) and collusion with local officials has
long been known to the Central Government, he averred. Rio is
the entrie point for attacking industry-wide problems, and in
his view, Rio's involvement is not intended as payback for

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perceived slights (Chinalco) or to pressure Australia in the
iron ore negotiations. Corruption is the target, not lowering
the ore price, in his view.
CAMP