The Rio Tinto story in China has gotten a lot of press recently. For those of you who have not followed the story, on July 5, China detained 4 Rio Tinto employees, including its chief executive in Shanghai, Stern Hu, on suspicions of espionage. Then on August 12, the employees were formally arrested on suspicions of commercial bribery and trade secrets infringement (substantially less serious then espionage). The investigation is still ongoing, but has cause Rio Tinto to pull all of its employees out of the Shanghai office. Some people believe that the Chinese government's actions is partially an reaction to Rio Tinto's failure to close a $19.5 billion business deal with Aluminum Corporation of China.

This is a prime example of how the Chinese government uses its enforcement powers as a negotiating tool. It is highly likely that the Rio Tinto employees may have been involved in various degrees of bribery to gain unfair advantages or access to state trade secrets, but this conduct happens in China on a regular basis at different levels of the government. Corruption is a huge issue in China and, unfortunately, it is part of doing business there. The government often seriously cracks down on these activities when it suits their purposes or when the act is too egregious to ignore. The Rio Tinto case may be a combination of both of these factors. As a businessman in China, it is important to be especially sensitive when it comes to dealing with government officials. You must both know how to grease the gears, but also know what line not to cross.

Recently I was asked about the kind of investment opportunities in China and which industries should see China as a target market. China's Ministry of Commerce provides a catalogue of industries that it deems as either encouraged, restricted, or prohibited. Those companies that are in the encouraged industries listing would likely have a relatively easier time establishing a presence in China. MOFCOM lists the following as encouraged high technology industries:

Electronics and Information

1. Computer and Computer Peripheral Equipments
2. Microelectronics and Photoelectron device
3. Communication Equipment and Products
4. Broadcast and Television Technology and Products
5. Production equipment and test instrument for specialized techniques

Software and Outsourcing

1. System Software
2. Support Software
3. Application Software
4. Outsourcing

Aeronautics and Astronautics

1. Aircraft and Support Products
2. Ground Service Equipment
3. Commercial Carrier Rocket
4. Commercial spacecraft and ground facilities

Advanced Manufacture

1. Automated Machinery and Equipment
2. Key Basic Parts of Electromechanics
3. Instrumentation and System
4. Modern Transportation

Biomedicine and Medical Equipment

1. Biomedicine
2. Chemical medicine
3. Food Biotechnology and Products
4. New-type medical equipment

New Material

1. Metal Material
2. Inorganic Nonmetal material
3. Organic Macromolecule Material and Products
4. Composite Materials

New Energy and Efficient Energy Saving

1. New Type Energy and Equipment
2. Energy-saving Product

Environmental Protection

1. Atmospheric Pollution Prevention and Control Equipment
2. Water Pollution Prevention and Control Equipment
3. Solid Waste Disposal Equipment
4. Environment Monitoring Instrument

Geospace and Ocean

1. Reconnoitering and developing apparatus for energy sources and the mineral sources
2. Equipments for engineering meteraging and globe physical observation
3. Foundation Stability Exploration and Checkout for Large-scale project
4. Ocean Inspection Technology

Modern Agriculture

1. New breeds of choiced animals and plants
2. Fine breed's embryo biologic engineering products of the livestock
3. Biologic pesticide and biologic prevention products
4. New diagnostic reagent and biologic vaccine
5. New fertilizer
6. New high-efficiency feedstuff and additive
7. Agricultural engineering apparatus
8. Apparatus for the storage of agricultural products and byproducts,and the processing of the new tech-products

Outside of these high technology industries, the catalogue also lists numerous other industries that are encouraged by the Chinese government