Rio Tinto's Fallout

Last week a shanghai court sentenced rio tinto executive Stern Hu to 10 years in prison for bribery, a crime that's far more common in China than both Chinese and foreign businesspeople like to admit. The conviction was the latest in a series of corruption cases involving Western multinationals: also recently, Chinese oil giant Sinopec acknowledged that a former employee had received bribes from the German automaker Daimler, and two Chinese employees of PepsiCo have been embroiled in accusations of smuggling and tax evasion.

Of course, bribery cases involving foreign companies are hardly new in China. But what's different now is that Beijing—and the state-run media—is coming down with a particularly heavy hand on the accused. The brouhaha over Rio Tinto shows the lengths to which the government will go to emphasize that companies must play by China's rules—no matter how opaque those rules are. Indeed, experts say, the vagueness of the laws means China can apply them, or ignore them, as it sees fit. As Beijing's Legal Daily has pointed out, the government has kept "excessively silent" in previous bribery cases involving multinationals such as IBM, Siemens, and Alcatel-Lucent. The fact that it's now making a show of its struggle against "corruption from overseas" is a sign that China is growing ever more bold as it ventures into the global market. For their part, foreign businesses seem gloomy and resigned in the wake of Rio Tinto. As the president of the EU Chamber of Commerce wrote in the Financial Times, members' market sentiment has seldom been so "bleak or pessimistic" about playing by China's murky rules. And yet play they will—as Beijing well knows.