When Terence’s Dad Got Arrested

Foreign Business in China May Prove a Risky Career Choice

 

 

 

 

 

 

By Chris Eldred
Staff Writer, CMC ‘11

July 5, 2009 was a typical summer day in Shanghai. Then I received a phone call telling me Terence’s dad had been arrested.

Terence Hu is my friend from high school. His entire family are native Chinese but got Australian citizenship after living in Sydney for a few years. Still, Terence identified only with China; he rooted for China in the Olympics and often marveled at the idea that he needed a visa to enter his home country. He was a frequent guest at my house, and his parents were always very courteous.

Naturally, this news shocked me. Terence’s dad worked for a large Australian mining conglomerate called Rio Tinto – hardly the kind of company to become entangled in China’s political intrigue. But iron ore had recently taken on more significance than was previously apparent. Annual price negotiations between the Chinese and Rio Tinto had concluded. Late in the negotiations, information leaked that China could, in fact, settle for a smaller price cut than desired and still maintain its profit margins. Robbed of its leverage, China had to settle for the same 33% cut that South Korea and Japan had already accepted, instead of the 45% it sought.
And the night before, Stern Hu was arrested and accused of using corrupt means to obtain privileged corporate information. China, it seemed, was blaming him for this crucial eleventh-hour revelation.

Terence and his family were never allowed to visit his father. Per international treaty, the only visitor permitted came from the Australian Consul-General in Shanghai. The Chinese government has provided no information as to where and under what conditions he is imprisoned. Only a few weeks ago did the local department of justice decide to proceed to actually try the case. A family friend or not, no prisoner in the modern world deserves such treatment – particularly those under such benign charges as corporate bribery.

In its coverage of cases like this, the Western press tends to focus on castigating the Chinese regime for disregarding human rights. Indeed, China’s justice system is highly politicized and secretive. Nonetheless, without knowing the evidence or lack thereof, I will not presume to play judge and jury. My experience in China has taught me that a more measured reaction allows consideration of significant questions that arise.

More importantly, this case raises important questions about the relationship between Chinese politics and foreign business. Hu’s arrest shocked me, my family, and other foreigners like us. By the time of his arrest, my family had been living in Shanghai for five years. Expatriates in China tend to develop a slight sense of immunity to the big, bad government. Falun Gong, the death penalty, Tibet – these topics just do not matter in the day-to-day lives of expatriate families.
If anything happens to a foreign businessman in China – so the story goes – the worst-case punishment is deportation. Occasionally, for violent offenses, foreigners have been imprisoned. But no reasonable, law-abiding Westerner ever expects China’s politicized system of justice to impact them in any way.

It remains unclear how the Rio Tinto case will affect this calculus. China does retain a sense of ownership over what they call “overseas Chinese,” or foreign citizens of Chinese origin, far more so than over the overseas Chinese’s Caucasian countrymen. Yet China’s willingness to imprison an Australian passport-holder over such vague allegations certainly crosses many thresholds that foreigners in China once thought were ironclad.

Indeed, a culture of uncertainty now pervades Shanghai’s foreign business climate. As Kathryn Pauli, a practicing attorney in Shanghai for a Washington, D.C. law firm, tells the Port Side, “Where there are no public court documents detailing the allegations – only vague reports in the news media – business people are left to wonder and fear the worst… Since the trial also won’t be public, how can any person of any nationality in China feel that they will know just what behavior is being punished and why?”

It is clear from the Rio Tinto case that one must exercise the utmost caution when conducting business in China. According to Pauli, foreign mining companies are already taking precautions before opening negotiations with Chinese companies; they are “seeking advance guarantees of immunity from prosecution for their employees.” Yet this problem extends far beyond the field of mining. Given the number of Claremont McKenna students looking to pursue business careers in China, the Rio Tinto case hits home. We must make sure to calculate carefully whether what we are doing and how we are doing it tracks with China’s political culture – because, as this case shows, foreign business is not necessarily immune from extreme government intervention.

UPDATE: On Monday, March 22, the Washington Post (WITH THIS AS A HYPERLINK http://www.washingtonpost.com/wp-dyn/content/article/2010/03/22/AR2010032200822.html) reported that Hu and his colleagues plead guilty to bribery charges. Nonetheless, because I still have no inside information, I cannot draw firm conclusions.

By Chris Eldred

Staff Writer, CMC ‘11

UPDATE:

 

 

On Monday, March 22, the Washington Post reported that Hu and his colleagues plead guilty to bribery charges. Nonetheless, because I still have no inside information, I cannot draw firm conclusions.

July 5, 2009 was a typical summer day in Shanghai. Then I received a phone call telling me Terence’s dad had been arrested.

Terence Hu is my friend from high school. His entire family are native Chinese but got Australian citizenship after living in Sydney for a few years. Still, Terence identified only with China; he rooted for China in the Olympics and often marveled at the idea that he needed a visa to enter his home country. He was a frequent guest at my house, and his parents were always very courteous.

Naturally, this news shocked me. Terence’s dad worked for a large Australian mining conglomerate called Rio Tinto – hardly the kind of company to become entangled in China’s political intrigue. But iron ore had recently taken on more significance than was previously apparent. Annual price negotiations between the Chinese and Rio Tinto had concluded. Late in the negotiations, information leaked that China could, in fact, settle for a smaller price cut than desired and still maintain its profit margins. Robbed of its leverage, China had to settle for the same 33% cut that South Korea and Japan had already accepted, instead of the 45% it sought. 
And the night before, Stern Hu was arrested and accused of using corrupt means to obtain privileged corporate information. China, it seemed, was blaming him for this crucial eleventh-hour revelation.

ChinaTerence and his family were never allowed to visit his father. Per international treaty, the only visitor permitted came from the Australian Consul-General in Shanghai. The Chinese government has provided no information as to where and under what conditions he is imprisoned. Only a few weeks ago did the local department of justice decide to proceed to actually try the case. A family friend or not, no prisoner in the modern world deserves such treatment – particularly those under such benign charges as corporate bribery.

In its coverage of cases like this, the Western press tends to focus on castigating the Chinese regime for disregarding human rights. Indeed, China’s justice system is highly politicized and secretive. Nonetheless, without knowing the evidence or lack thereof, I will not presume to play judge and jury. My experience in China has taught me that a more measured reaction allows consideration of significant questions that arise.

More importantly, this case raises important questions about the relationship between Chinese politics and foreign business. Hu’s arrest shocked me, my family, and other foreigners like us. By the time of his arrest, my family had been living in Shanghai for five years. Expatriates in China tend to develop a slight sense of immunity to the big, bad government. Falun Gong, the death penalty, Tibet – these topics just do not matter in the day-to-day lives of expatriate families.
If anything happens to a foreign businessman in China – so the story goes – the worst-case punishment is deportation. Occasionally, for violent offenses, foreigners have been imprisoned. But no reasonable, law-abiding Westerner ever expects China’s politicized system of justice to impact them in any way.

It remains unclear how the Rio Tinto case will affect this calculus. China does retain a sense of ownership over what they call “overseas Chinese,” or foreign citizens of Chinese origin, far more so than over the overseas Chinese’s Caucasian countrymen. Yet China’s willingness to imprison an Australian passport-holder over such vague allegations certainly crosses many thresholds that foreigners in China once thought were ironclad.

Indeed, a culture of uncertainty now pervades Shanghai’s foreign business climate. As Kathryn Pauli, a practicing attorney in Shanghai for a Washington, D.C. law firm, tells the Port Side, “Where there are no public court documents detailing the allegations – only vague reports in the news media – business people are left to wonder and fear the worst… Since the trial also won’t be public, how can any person of any nationality in China feel that they will know just what behavior is being punished and why?”

It is clear from the Rio Tinto case that one must exercise the utmost caution when conducting business in China. According to Pauli, foreign mining companies are already taking precautions before opening negotiations with Chinese companies; they are “seeking advance guarantees of immunity from prosecution for their employees.” Yet this problem extends far beyond the field of mining. Given the number of Claremont McKenna students looking to pursue business careers in China, the Rio Tinto case hits home. We must make sure to calculate carefully whether what we are doing and how we are doing it tracks with China’s political culture – because, as this case shows, foreign business is not necessarily immune from extreme government intervention.

Christopher Eldred is a Staff Writer for the Claremont Port Side. He was born and raised in the District of Columbia, but has been based out of Shanghai, China for the last six years. A government major, he is looking forward to working in politics later on, though he can't rule out an expatriate life.


One Response to “When Terence’s Dad Got Arrested”

  1. Kathryn Pauli says:

    The Shanghai Daily reports this morning that the court here sentenced all four to jail terms ranging from 7 to 14 years. Stern Hu will serve a combined sentence of 10 years. http://www.shanghaidaily.com/sp/article/2010/201003/20100330/article_432698.htm.


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