Stern Hu’s case has lessons for Aussie exporters

Rio Tinto executive Stern Hu’s admission yesterday that he accepted bribes has sent shock waves through the international business community and will cause greater unease about doing business in China. But how justified is the concern and what does this case mean for Australian entrepreneurs?

Yesterday the Rio Tinto executive pleaded guilty in a Shanghai court to accepting bribes of $1.5 million on iron ore trades with China.

Hu, a Chinese born Australian citizen, was also accused of stealing commercial secrets and that part of the trial is scheduled to begin today.

His colleague, Liu Caikui, was also accused of taking a bribe of nearly $400,000. Two other Rio Tinto executives have reserved their pleas on bribery.

The case is a stark reminder that doing business in China comes with a new legal rule book. And that exporters have to understand not just the legal framework but the political undercurrents of doing business in China.

There are 4,500 companies exporting into China and 3,000 Australian companies based there. Nearly all are small to medium businesses.

“Proportionally China is the fourth most important destination for SMEs and 23% of SMEs that export, export to China,” says Austrade economist Tim Harcourt.

But after that one comment to SmartCompany, he is closed lipped. So are many others, especially when talking about taking or paying bribes in China.

The last time I was in Shanghai I talked to dozens of Australian businesses about doing business in China. I was told that while China was working hard to crack down on illegal business practices, bribery was very much a way of business life, as was smuggling cash in and out of China.

The Australian exporters were not involved directly. While many Australians say they did not accept or take bribes, some told me that that side of business is usually organised by their Chinese joint venture partners and handed to third parties. In other words, they turn a blind eye because it is the way things are done.

So a high profile case like this does nothing to make Australians feel more secure about doing business in China.

In a hard hitting story in the AFR today, Chinese correspondent Coleen Ryan points out that an American Chamber of Commerce survey done by the Beijing office has found a rising number of its members feel unwelcome in China. About 38% of the companies surveyed say they feel unwelcome to participate and compete in the Chinese market, up from 26% from the 2009 annual survey and 23% in 2008.

AmCham itself conducted the latest survey because it was concerned about the deteriorating investment environment.

However, one Australian exporter told SmartCompany this morning: “This is not about doing every day business in China. This is about Rio Tinto and the iron ore trade.”

There is a lot at stake. The iron ore export trade is worth $34 billion a year to Australia. The steel industry is worth even more to the Chinese, which is in the middle of sensitive price negotiations in an attempt to stop prices climbing.

The Federal Government is trying to position the Rio Tinto affair as just that: a one off, individual case that will happen again as trade grows between the two countries and that it should not be politicised.

But even if that is the case, it is going to make our Australian exporters a little more cautious. And that could be a good thing.