Australia warns China on spy case

Australian Prime Minister Kevin Rudd has warned that China has big economic interests at stake in the case of a mining executive accused of spying.

He said the matter was being watched closely from abroad.

Mr Rudd has been under pressure at home to be more assertive with China, to better protect the detained Australian citizen, Stern Hu.

China says it has evidence of spying, bribery and theft of state secrets in a widening probe of the steel industry.

"Australia of course has significant economic interests in its relationship with China, but I also want to remind our Chinese friends that China too has significant economic interests at stake in its relationship with Australia and with its other commercial partners around the world," Mr Rudd told a press conference.

The Shanghai-based staff of the Anglo-Australian mining firm Rio Tinto, including Australian Stern Hu, Rio's top iron ore salesman there, are accused of stealing state secrets from Chinese steel mills.

China has widened its investigation into the industry's workings by investigating executives at Chinese state-owned steel firms in recent days.

Investigation

Also on Wednesday, Rio Tinto reported second-quarter results, indicating that markets were remaining tough with demand slowing.

Production of bauxite, alumina and aluminium were all reduced, but on the upside iron ore production rose for the three month period by 8% from a year earlier.

Rio Tinto has not yet finalised price settlements for iron ore sales to certain customers, including steel mills in China. But deals with Japan, Korea and Taiwan have been reached.

"Deliveries continue to other customers on a provisional price or spot sales basis," said Rio Tinto chief executive Tom Albanese.

Reports suggest the spying case is complicating talks between China and iron ore suppliers around the world.

Cutting debt

In June, Rio Tinto abandoned a $19.5bn deal with China's state-owned Chinalco in favour of a tie-up with rival giant BHP Billiton, to the anger of some in Beijing.

The firm has been seeking to reduce the $38bn of debt it took on to buy the Canadian aluminium group Alcan in 2007.

In its second-quarter results, Rio said it had continued to press ahead with steps to cut costs and bring down levels of net debt.

After it pulled out of its deal with Chinalco, Rio sought other ways to raise cash. Recently it completed a £15.2bn rights issue and the firm is to offload investments worth £3.7bn.

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