Until last month outside of business circles, little was known about the controversy other than that China, the world's largest steel producer, was negotiating iron ore prices with Rio Tinto, a principal supplier of raw materials to China.

Later it was widely reported Rio Tinto had backed out of a $19.5 billion deal with China's state-owned Chinalco, preferring instead a joint venture with rival BHP Billiton.

A successful Chinalco-Rio Tinto deal would have been the largest foreign investment for China as it actively seeks such opportunities for its staggering foreign exchange reserves of more than $2 trillion.

A successful deal also would have added to the growing clout of China, the world's third-largest economy, as it competes with other developed nations to secure the supply of vital resources and commodities for economic development. Chinalco currently owns 9 percent of Rio Tinto.

The collapse of the deal did not sit well with China, which publicly expressed its disappointment.

Then in early July, Chinese authorities in Shanghai announced they'd detained four employees of Rio Tinto including Stern Hu, an Australian citizen and the company's general manager in Shanghai in charge of iron ore business in China. The other three employees were reported to be holding Chinese passports.

The four were accused of stealing China's state secrets, but little of the charges' details have so far been disclosed, raising concerns in trade circles about doing business with China.

While Australian officials reportedly said the detention did not appear related to Chinalco's soured deal, a Rio Tinto e-mail to China's official news agency Xinhua was quoted as saying: "We are not aware of any evidence that would support such an investigation," adding it would cooperate fully with Chinese authorities.

As efforts were under way to contain the controversy, a Chinese Foreign Ministry spokesman went so far as to claim espionage and theft of state secrets by the four Rio Tinto employees had seriously harmed China's "economic interests and security," but again gave no details. He also added China "will continue holding a positive attitude on economic and trade cooperation" with Australia.

The issue took another turn last week as China Daily, quoting an industry source, reported Rio Tinto employees had allegedly bribed 16 Chinese steel mill executives during iron ore price talks even as the Chinese government was considering invalidating 20 iron ore import licenses to regulate China's import business.

"Rio Tinto got to know the key executives of the 16 steel mills, who have sensitive industry information, when the China Iron and Steel Association brought them to the bargaining table," the report quoted the source as saying.

"And then Rio Tinto bribed them (to get access to industry data), which has become an unwritten industry practice."

Australian Prime Minister Kevin Rudd was later quoted as saying the case was being watched by foreign governments and companies that would draw "their own conclusions as to how it is conducted."

Concerned about the whole issue and its impact on doing business with China, the United States called on the communist country for more transparency on the arrests of the Rio Tinto employees, CNN reported.

The Rio Tinto issue comes in the wake of recent complaints by the European Union and the United States with the World Trade Organization, saying Chinese export quotas on some of its raw materials and tariffs violated the agency's rules. The quotas, benefitting domestic Chinese industries, cover exports of critical items such as bauxite, coke, magnesium, zinc and silicon metal in which China leads world output. Despite declines in its exports due to the global financial crisis, China's demand for raw materials, energy and other resources shows no signs of abating.

"China's policies on these raw materials put a giant thumb on the scale in favor of Chinese producers," U.S. Trade Representative Ron Kirk said while filing the WTO complaint. China has said its export restrictions help protect the environment and natural resources.

Reporting on the detention of the Rio Tinto employees, The New York Times quoted experts on China's steel and iron ore industry that corrupt practices have existed for years including the exchange of confidential market data, which China regards as state secrets.

These experts said there were now concerns and rumors in the steel industry there could be several more arrests at a time when the industry is coming out of its slump.

"There's a large gray area out there," one industry official told the newspaper in a telephone interview. "We entertain officials all the time. Is that considered a bribe?"

A speedy resolution of the Rio Tinto issue is seen as benefitting all including China as, in the words of Australian Prime Minister Kevin Rudd, it too "has significant economic interests at stake in its relationship with Australia and with it other commercial parties around the world."

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