Rio arrests reflect Beijing financial jitters

By Rob Taylor and Lucy Hornby

CANBERRA/BEIJING (Reuters) - China's arrest of Rio Tinto staff for spying points to economic worries in Beijing, a security analyst said, and an Australian newspaper reported China's president endorsed the Rio investigation.

The arrest of Rio's top iron ore salesman in China helped push down shares on Monday in BHP Billiton and Rio Tinto, the world's two largest iron ore firms respectively. The arrests and protracted price talks between Rio and Chinese steel mills unsettled investors, traders said.

The arrests have cast a shadow over Australia-China ties, which have been key to Australia avoiding a recession in 2009, and placed pressure on Prime Minister Kevin Rudd, a former Beijing diplomat and fluent Mandarin speaker, to personally contact Chinese President Hu Jintao.

Anglo-Australian miner Rio was in intense price negotiations with China when Australian Stern Hu and the three others were detained in Shanghai, accused of stealing state secrets and bribing Chinese steelmakers for information.

The investigation into Rio appears to be part of a realignment of how China manages its economy in the wake of the global financial crisis, with spy and security agencies promoted to top strategy-making bodies, the Sydney Morning Herald newspaper said on Monday.

The nine-member standing committee of China's Communist Party, led by President Hu, had taken more control over economic decisions at the expense of the State Council, led by Premier Wen Jiabao, it said, quoting anonymous Chinese economic advisers.

The president endorsed the Rio investigation, it said.