Rio’s Chinese ordeal makes global companies shudder

If the fate of the former chairman of Sinopec is anything to go by, it is the executives of Chinese steel companies and not of Rio Tinto who should worry about allegations of wholesale bribery in iron ore negotiations. According to Xinhua news agency, Sinopec’s Chen Tonghai on Wednesday received a suspended death penalty for alleged bribery. Chairmen who complain about having to preside over a stormy investor meeting or restrain an expansionist chief executive suddenly have a new and frightening perspective on the risks and rewards of their job.

Nevertheless, the detention in China of Stern Hu, Rio’s chief iron ore negotiator – followed now by lurid accusations against Rio in the state-owned China Daily – will send a shiver through all non-Chinese companies that have placed a big bet on the relative predictability of the Chinese market compared with, say, the wilder reaches of the Russian economy.

Rio Tinto has said all along that it is committed to high standards of business integrity. But as Kevin Rudd, Australia’s prime minister, has said, the blunt way in which China has gone about dealing with Mr Hu, an Australian citizen, and three Chinese employees of Rio also detained in China, threatens China’s significant economic ties in other areas. It certainly could reverberate well beyond Rio, the wider mining industry and Australia.

Rio doubtless expected a hard time after it abandoned its fundraising deal with Chinalco, the state-owned mining group, last month. As it happens, Chinalco has followed Lombard’s suggested template by taking up its rights in the Rio Tinto equity issue – a more subtle way of keeping up the pressure on Rio’s management than ditching the stake and storming off.

But in every other respect, the Chinese state’s treatment of Rio looks as blunt as it could be. My suggestion last month that the time wasn’t yet ripe for Rio management to book a peacemaking visit to Beijing now looks a huge understatement.

Land of opportunity
The property industry is dividing into the haves and the have-nots. The glimmer of sunshine in Wednesday’s trading statement from Land Securities puts the largest of the UK’s real estate investment trusts firmly in the first camp: a well-timed rights issue has given it £750m in cash and a renewed appetite for investment.

Most significant is the group’s decision to start development again in London’s West End. Well-chosen developments – which can take three years or more to finish – will make more money for the company over the long term than investments. Francis Salway, chief executive, suggests its West End properties will open their doors at a time of rising rents for the area (note that he has made no such prediction about the City of London).

Where Land Securities leads, others usually follow. Just as caution in May triggered falls across listed real estate companies, so Wednesday’s tentative optimism led the sector higher. Mr Salway says the company’s view of a peak to trough decline of 45-50 per cent seems justified so far by facts on the ground. link......