Society

In addition to its cheap labor costs, China has another comparative advantage as the world's factory: Companies often pay almost nothing to pollute China's air, water and soil and to poison its people.

Need pliant workers to handle toxic chemicals? Wages are just $2.60 a day. What if the chemicals contaminate a town? Compensating a family of five costs just $732. Local water supply contamination makes 4,000 people vomit? That's just $7 per household. Cost of bribing local Chinese officials to look the other way rather than adhering to safety standards? Well, that's unknown, but given the frequency of China's pollution atrocities, apparently it is cost-effective.

While companies can get away with pollution atrocities for years, the Chinese government, in the long run, may have to pay a high price for allowing it: political instability triggered by the unanswered grievances of pollution victims.

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China's skirmish with Rio Tinto has escalated into an all-out war.

First, the Anglo-Australian mining giant ruffled China's feathers in June by scrapping a tie-up with China's Chinalco. The Chinese miner was to pay $19.5 billion to buy Rio Tinto's iron ore, copper and other assets, along with convertible bonds. Instead, Rio infuriated China by abruptly scrapping the Chinalco deal and tying up with archrival BHP Billiton.

In early July, the deadline came and went during Rio Tinto's negotiations with a group of Chinese steelmakers for setting a benchmark price for iron ore purchases. Rio refused to reduce prices as much as China demanded, leaving China to pay higher spot prices for ore.

Days later, China detained four Rio Tinto employees in Shanghai and accused them of stealing state secrets.

The stir caused by Jiang Rujin, a former provincial-level security boss, in an online article about the Rio Tinto spying case, says less about the case itself than it does about not just one but two power struggles within China's bureaucracy.

The first is around Beijing's attempt to control the country's fragmented steel industry, so important to an industrializing country like China.

For some years, the steel companies handled price negotiations themselves for their raw material, iron ore. The economic bureaucrats in Beijing have been getting increasingly angry that the individual companies were consistently getting the worse end of each deal, with the consequent impact on the economy of higher steel prices--$100 billion worth of damage over the past six years, according to Jiang.

China fired another round in its ongoing trade dispute with Australia when it formally arrested four Rio Tinto employees it had accused of bribery and spying.

The four employees were formally arrested on charges of infringing on trade secrets and paying bribes, China's Xinhua News Agency reported Wednesday morning.

Three of the employees are Chinese and one is Australian citizen Stern Hu, who was born in China. Chinese authorities have held the four Rio Tinto employees since July 5, when they were detained in Shanghai and accused of paying bribes to obtain steel industry secrets.

The arrests came during contentious negotiations between China and the miner on iron ore prices.

Australia and China have had an increasingly tense relationship since June, when Rio Tinto enraged and surprised China by pulling out of a deal to tie up with Chinese company Chinalco. Chinalco had agreed to pay $19.5 billion to buy much of Rio's mining operations and convertible bonds.

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The Deeper Level Of The China-Rio Affair