China's acrimony over iron-ore price contracts with the world's third largest miner Rio Tinto escalated on Sunday 5 July, when it arrested four Rio employees, including its top iron ore price negotiator, in Shanghai on charges of espionage and stealing state secrets.

The four detainees are from the Shanghai sales and marketing office of Rio Tinto and include marketing manager Stern Hu, who holds an Australian passport and is the mining giant's chief negotiator in the negotiations for this year's benchmark iron ore annual contract prices while the other three are Chinese citizens.

Since their arrest on Sunday, Rio Tinto has still not been able to contact the employees and only today did the Chinese authorities respond to its repeated queries on the reasons for the arrests, saying that they had been detained on charges of espionage and stealing state secrets.

All the while, the Chinese embassy in Canberra has chosen not to talk about the arrests.

Not only have the Chinese authorities and police refused to comment on the arrest, not a single Chinese newspaper has reported the arrests.

Australian Department of Foreign Affairs and Trade said in a statement that it was seeking urgent consular access through its embassy in China and its consulate in Shanghai to the detained employees, which has not been granted so far.

Not only are the Australian government and Rio Tinto perplexed over the detention, but are highly agitated now over the reasons given for the arrests.

Hu is a long-term employee of Rio Tinto and has been living in Shanghai with his wife, who is also an Australian citizen and is now being cared for by Australian consulate officials in Shanghai.

Rio Tinto said in a statement, "It appears four employees from our Shanghai office have been detained for questioning by the Chinese authorities in Shanghai. The reasons for these actions are unclear. We intend to co-operate fully with any investigation the Chinese authorities may wish to undertake and have sought clarification on what has occurred."

"We are concerned about our people's wellbeing and are doing everything we can to help them and support their families," it added.

The arrest of the Rio Tinto employees comes against the backdrop of two main events taking place in China now.

One is the ongoing bloody ethnic clashes in China's Xinjiang Uygur Autonomous Region, where about 156 people were killed and about 1,000 wounded. The arrests incidentally took place on Sunday, the day that the Rio Tinto's employees were arrested. (See: After Tibet, Xinjiang erupts - 140 killed, over 800 injured)

The violence has forced Chinese president Hu Jintao to fly back to Beijing from Rome yesterday, where he was scheduled to take part in the G8 summit beginning today.
Second, is the prolonged price negotiations between Rio Tinto and China in setting this year's benchmark iron ore annual contract rates, which have been going on since November. (See: Global iron ore miners locked in pricing battle with China)

The negotiations had become acrimonious after Rio Tinto dumped Chinalco's proposed $19.5-billion investment last month in favour of a $15.2 billion rights issue (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issue)  and teamed up with rival BHP Billiton for a 50:50 joint venture to develop Western Australian iron ore mines (See: Rio-BHP team up for mining venture).

The Chinese steel association CISA has been leading the negotiations with the three big miners, which are being held in Hong Kong and Singapore amid the miner's fears that if the talks were to be held in China, their internal conversations and e-mails could be tapped by the Chinese authorities and information passed on to the CISA.

Australia's National Party's leader in the Senate Barnaby Joyce has linked the arrest with Rio dumping the Chinalco deal. He had been a critical opponent of the now aborted Rio-Chinalco deal and had even released TV commercials opposing it.

Senator Joyce told Australian media, "We know that they're being held by an arm of the Chinese Government. The reason for them being held, we don't know, we know that we're failing to get proper diplomatic access to them, to Stern Hu, and what we can deduct is that there'd have to be a relationship between Chinalco's failure in its purchase of Rio and the ramifications that go beyond a state-owned enterprise all the way to the Chinese Government."

After Rio snubbed Chinalco, major Chinese newspapers had blamed Rio Tinto and the Australian government, with Xinhua orchestrating the government's frustration saying that Rio had dumped Chinalco like a scorned woman.