Rio Tinto's Complicated Relationship With China

If you've been watching the machinations of Rio Tinto (NYSE: RTP  ) during the past couple of years, you may be intrigued by the company's recent news.

For starters, given the conditions that existed, Rio Tinto chalked up a creditable year. Its net profit increased by a third to $4.9 billion, from $3.7 billion. However, the figure for 2008 included a $7.9 billion writedown of its aluminum business. Looking ahead, Tom Albanese, Rio's CEO, expects metals and minerals demand in China to increase by about 9% this year. Largely for that reason, as The Wall Street Journal noted on Friday, Mr. Albanese and his colleagues are seeking to "grow and work together" with the Chinese.

That would have to occur in the face of four of the company's employees having been indicted last week by prosecutors in Shanghai. The employees, who had first been detained last summer, are being charged with accepting multiple bribes from Chinese steel companies, along with improperly obtaining commercial secrets. China spent a total of more than $50 billion on iron ore, its second-largest import, last year.

The four employees' initial detention first occurred as Rio, along with BHP Billiton (NYSE: BHP  ) and Vale (NYSE: VALE  ) , the two other major mining companies, were in tense negotiations with the Chinese steelmakers aimed at determining last year's benchmark price for iron ore. Negotiations have resumed for 2010, with Chinese steelmakers looking at a potentially painful 40% increase in prices.

All this has attracted the rapt attention of business executives worldwide, for whom dealing with China has occasionally been less than smooth. Google (Nasdaq: GOOG  ) , for instance, was recently involved in a dust-up with Beijing over cyber-attacks. And even more recently, China threatened to sanction U.S. companies involved in a $6.4 billion program of arms sales to Taiwan. That U.S. contingent included Boeing (NYSE: BA  ) , United Technologies (NYSE: UTX  ) , and Raytheon (NYSE: RTN  ) .

As to Rio Tinto, my inclination is to watch the company closely. While the indictments are less than desirable events, there's little reason to suspect that the company's relationship with China won't continue to be prosperous. On that basis alone, the company could be considered a solid addition to Foolish portfolios.  

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Fool contributor David Lee Smith doesn't own shares in any of the companies listed in the article above. He does, however, welcome your comments or questions. Google is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has an ironclad disclosure policy.


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