Doing business with China has never been easy or without risks. It’s a littlie dicier these days because what’s regarded elsewhere as commercial information instead is seen by Beijing as a state secret. And that’s especially true when trade negotiations aren’t going China’s way. Case in point: The recent “detention” of four Rio Tinto Group employees in Shanghai on charges they had steel and iron ore market information. Australian iron ore mining giant Rio Tinto and the Chinese steel industry, the largest in the world, have been haggling for months over a fiscal 2009-2010 master supply contracts. China wants a price cut of 40%; Rio Tinto (like its rivals BHP Billiton of Australia and Vale of Brazil) has been offering a 33% cutback accepted by steelmakers in Japan and Korea. Atop that, Rio Tinto has broken away from a $19.2 billion investment deal with state-owned mining giant Chinalco because of political bickering between the government of Prime Minister Kevin Rudd and Australian opposition party leaders.

After the Chinalco slap and with the iron ore talks stalled, China earlier this month detained the Rio Tinto iron ore negotiating team led by an Australian who has lived in China for years. Lately, the activity has escalated: Rio Tinto now is accused of stealing state secrets, the Chinese iron and steel market data, and bribing officials from China's top 16 steel mills to obtain that market information. For some two weeks, the matter has been handled at the diplomatic level with Canberra, Washington and other western capitals urging the China to cease and desist the investigations. The U.S. and Australian governments have voiced concern about the arrests and transparency in doing business in China. The Chinese have responded by saying the situation is being handled according to the law, and foreign companies must abide by local rules.

Beijing says the iron ore contract negotiations should be allowed to continue. A Commerce Ministry spokesman today says his understanding is that iron ore price talks between Chinese steel mills and ore miners are still ongoing. Yao Jian tells the media this morning in Beijing that “the Commerce Ministry will support continued talks between the China Iron and Steel Association and international iron ore suppliers, and hopes that the two sides will reach a balanced conclusion at an early date.”

But today, Rio Tinto has decided to break its silence: Sam Walsh, chief executive of the Rio Tinto iron ore business, in a statement on the company website, says: “Rio Tinto believes that the allegations in recent media reports that employees were involved in bribery of officials at Chinese steel mills are wholly without foundation. We remain fully supportive of our detained employees, and believe that they acted at all times with integrity and in accordance with Rio Tinto's strict and publicly stated code of ethical behavior.”

Note that building relationships, or guanxi in Mandarin Chinese, has long been a part of Chinese culture and crucial to doing business here. Now, the state-controlled media is saying that all of the mining companies have been wined and dined by the Chinese iron ore industry. This isn’t illegal--or, at least, it wasn’t considered as such in the past. Howvere, Xianfang Ren, a senior analyst at IHS Global Insight, admits that “the line between entertainment, public relations and government relations, and bribery, commercial bribery - it's kind of blurred here in China.”

For more detail on the global political and possibly economic implications of this Snafu in Shanghai, I recommend reading the commentary on Bloomberg.com by William Pesek. “Anyone wondering about corruption in China should consider the number 21: That’s China’s ranking among 22 economies assessed as part of Transparency International’s latest bribe payers’ index,” he writes. “Only Russia has a lower score than the world’s third-biggest economy. That deflates the Chinese government’s claim that Rio Tinto Group executives may have engaged in bribery.” See: China’s 7.9% Triumph Tarnished by Rio Tinto Mess: William Pesek