By Debra Mao March 19 (Bloomberg) — Foreign companies that do business in China will be tracking the criminal trial next week of Rio Tinto Group iron-ore chief Stern Hu and three colleagues to see if politics plays as big a role in any conviction as the evidence, lawyers said. The detentions of Hu, Liu Caikui , Ge Minqiang and Wang Yong for allegedly stealing state secrets — later downgraded to taking bribes and infringing company secrets — sharpened the focus on a judicial system largely avoided by foreign parties because of its lack of transparency, the lawyers said. Chinese judges openly say Communist Party politics influence their decisions, with Supreme People’s Court President Wang Shengjun encouraging jurists in December to prioritize the “causes of the party,” the “interests of the people” and “the constitution and laws.” “While we generally feel the judicial system is improving, for foreign investors it is still kind of scary,” said Betty Tam , a Shanghai-based partner at U.K. law firm Herbert Smith who advises on foreign direct-investment issues. “The laws and regulations may not be as clear as we want them to be.” Those investors almost always prefer using arbitrators with agreed rules instead of going to court, Tam said. The four Rio Tinto defendants didn’t have that option. They go on trial March 22 in Shanghai. Under Article 126 of the Chinese constitution, judges aren’t barred from political interference, whereas it states that courts should be free from interference by administrative organs, social organizations and individuals. Law and Politics “Will politics play a role? Of course it will,” said Nanping Liu , co-founder of Shanghai law firm Liu & Wang. What makes a Chinese judge “outstanding” is the ability to juggle legal and political issues simultaneously, said Li Shicheng , vice-president of the High People’s Court of Sichuan province. “Practicing law and politics together is not always bad,” Li said in January at a legal training program in Hong Kong. Foreign Ministry spokesman Qin Gang said yesterday that Rio Tinto is “just an individual business case” that shouldn’t be “politicized.” Hu, an Australian national, and his colleagues were detained in July by Chinese authorities who said their actions harmed the nation’s economic interests and security. They were indicted Feb. 10. The defendants will be tried by the Shanghai No. 1 Intermediate People’s Court, Australia’s foreign affairs department said. Open and Closed Proceedings related to charges of receiving bribes will be open, while those concerning allegations of infringing on commercial secrets will be closed. The trial is listed on the court’s calendar for three days. The fact that the detentions came so closely on the heels of Rio’s iron-ore price negotiations with Chinese steel companies created an impression the cases were “arbitrary acts,” said New York University law professor Jerome Cohen , who has advised foreign companies in China for more than 20 years. Concerns about the rule of law haven’t affected China’s ability to attract foreign direct investment , which rose almost 8 percent in January from a year ago. Foreign companies parked $90 billion in investment there last year. China became Rio’s largest market last year, accounting for 24.3 percent of its sales, compared with 18.8 percent the year before. The proportion of sales to China, the world’s biggest iron-ore consumer, has doubled since 2004. Rio’s largest shareholder is state-owned Aluminum Corp. of China, the nation’s largest producer of the metal. “A Prism” “The trial is a kind of a prism through which you can see a lot of the problems of doing business in China,” said William McCahill , the Beijing-based vice chairman of Pacific Epoch, which provides research to institutional investors. “Better business people have been aware of those all along.” Courts were used mainly for political trials during Mao Zedong ’s Cultural Revolution, which ended in 1976. The nation’s Justice Ministry resumed operations in 1979, and a criminal procedure code was adopted that year. It was amended in 1997. The country now has about 166,000 lawyers and more than 15,000 law firms. Law firms from 21 countries operate 224 foreign law offices in China. Litigation rose by 6.3 percent to more than 11 million cases in 2009, according to the Supreme People’s Court, the nation’s highest. Legal Reforms Since joining the World Trade Organization in 2002, China overhauled antitrust regulation and labor contract law, and in December introduced a comprehensive tort law. China also has specialized intellectual property courts for trademark, copyright and patent issues. “China has invested heavily in establishing and strengthening institutions,” according to Randy Peerenboom , the author of “China’s Long March toward Rule of Law.” In the past year, courts jailed people pirating Microsoft Corp. software and ruled in favor of Isle of Man-based electric kettle controls maker Strix Ltd. in a patent suit against two Chinese companies. “When litigation does not affect sensitive issues, there is no limit to what you can do, the rights you enjoy,” said Flora Sapio , a lecturer on Chinese legal institutions at the University of Naples L’Orientale in Naples, Italy. “When the case is considered sensitive, the differences are very interesting.” “Not a Good Look” Politically sensitive cases may include those involving organized crime, collective petitioning or foreign investment projects, Human Rights Watch said in a 2006 report . Protectionism has also been perceived in commercial cases involving foreign parties in lower courts. In 1998, when Groupe Danone SA lost two municipal court lawsuits against its local joint-venture partner, the world’s largest yogurt-maker said “the legality or fairness of these two judgments are clearly doubtful.” The two-year dispute was resolved after arbitration in Sweden and a settlement brokered by the Chinese and French governments. Danone sold its stake in the partnership. “The lessons from Rio are being absorbed by every other company that deals with China,” said Ann Kent , a doctor of international law at the Canberra-based Australian National University. “It is really not a good look for the Chinese government.” To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net
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Rio Tinto Trial Highlights Communist Party Role in China’s `Scary’ Courts
