Will China Continue to Flex Its Muscles?

Stay tuned, Fools: China continues to flex its muscles. And whether the country's actions are appropriate or not, I'm one observer who is willing to wager that we ain't seen nothin' yet.

On Monday morning, for instance, exactly a week following the start of their trial, four employees of Anglo-Australian mining giant Rio Tinto (NYSE: RTP  ) were convicted of accepting bribes and improperly obtaining Chinese commercial secrets. Stern Hu, the leader of the foursome, who was born in China but is a naturalized Australian citizen, will serve 10 years, along with facing a fine of 1 million yuan, or $146,000. The other three defendants received various sentences between 7 to 14 years, along with fines totaling 6.7 million yuan.

The defendants had surprised observers of the case when they pleaded guilty to the bribery charges leveled against them. Along with those charges, the court maintained that the Rio Tinto employees had pilfered such secret information as China's approach in dealing with sensitive iron-ore price negotiations.

At this point, there doesn't appear to be fallout from the trial for Rio Tinto specifically; however, it could be a nail in the coffin for large-scale iron ore negotiations. It may just be coincidence, but on the day the trial ended, Rio's countrymate BHP Billiton (NYSE: BHP  ) announced that it would sell short-term iron ore at the market price to the majority of its customers. This will create larger price fluctuations, but avoid the international conflict that comes with setting a benchmark price. And in a rising price environment, ore producers largely benefit. It's no surprise, then, that Brazil's Vale (NYSE: VALE  ) , the world's other major iron-ore supplier, responded by calling the benchmark system "over."

And from the standpoint of relations between China and other western companies, you're likely aware that Google (Nasdaq: GOOG  ) is at odds with the country over Chinese Internet censorship. It's therefore relocating its operations in the area to Hong Kong. Search-engine competitor Yahoo! (Nasdaq: YHOO  ) has indicated no intention of moving its servers from the mainland, where it competes with Chinese-grown Baidu (Nasdaq: BIDU  ) .

But let's return to Rio Tinto,and the potential effects the trial and sentencing of its employees might have on the company and its relationship with China. As I told you recently, Rio appears to be moving toward an iron-ore joint venture in Guinea, along with a possible gold and copper venture in Mongolia, both with Aluminum Corp. of China (NYSE: ACH  ) . On that basis, it appears that Rio remains in good stead with China. Fools eager to cash in on price increases in mining and other natural resources should thus keep a close eye on the company.

For related Foolishness:

Fool contributor David Lee Smith is a former miner and a former minor ... both of which occurred eons ago. He doesn't own shares in any of the stocks named, but does welcome your comments. Baidu and Google are Motley Fool Rule Breakers selections. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2010, at 1:40 AM, tigerontheprowl wrote:

    this article's weak

  • Report this Comment On March 31, 2010, at 6:27 AM, exseries7 wrote:

    Yahoo likely has no plans to leave China since they sold out to China long ago. Yahoo sold its Chinese operations to Chinese marketing firm, Alibaba. Yahoo's corporate organization then bought a 40% interest in Alibaba.

    U.S. congressmen once roundly chastised Yahoo for leaking private information of journalist Shi Tao, which later resulted in his imprisonment.

    Yahoo seems quite cozy with China and is not about to leave.

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