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.