Every edited Wang Jiaqi
At the regular press conference of the Ministry of Foreign Affairs yesterday (July 4th), a name that had disappeared for eight years was suddenly mentioned again — — Hu Shitai, an Australian Chinese businessman.
On March 29, 2010, the Shanghai No.1 Intermediate People’s Court ruled in the first instance that the defendant Hu Shitai was sentenced to 10 years’ imprisonment, confiscated property and fined RMB 1 million for the crimes of accepting bribes and infringing commercial secrets by non-state staff.
On May 17, 2010, the Shanghai Higher People’s Court issued a public verdict in the second instance, rejecting the defendant’s appeal and upholding the judgment of the first instance.
Lu Kang, a spokesperson for the Ministry of Foreign Affairs, said: Hu Shitai abided by the prison rules and discipline and obeyed management education during his prison term. China judicial authorities ruled that his sentence was reduced according to law. Hu Shitai was released from prison on July 4.
▲ Hu Shitai (data map, source: Oriental IC)
At that time, the "Hu Shitai case" shocked the whole world and shook the entire steel and mineral industry. In the first decade of the 21st century, Hu Shitai was well known in China’s steel industry. How powerful was his "energy"? Look at a set of data:
Since 2003, China steel enterprises have spent more than 700 billion yuan just because of the rising iron ore price in the past six years, which is equivalent to more than twice the total profits of China steel enterprises in the same period. Even in 2008, when the financial crisis broke out, China once again accepted that the price of fine ore rose by 79.88% and lump ore rose by 96.5%, which was the highest increase in history.
Behind this, of course, there is a problem of global iron ore pricing mechanism; But in this mechanism, Hu Shitai "contributed".
To review the Hu Shitai case, we have to start with the global iron ore pricing mechanism.
Before 1950, the global iron ore trading mode was mainly spot trading; In the 1960s, Japan became the main buyer of iron ore in Australia, and the two sides started to sign short-term contracts, which gradually developed into long-term contracts in the late 1960s, and the quantity and price of iron ore were locked for 10 to 20 years.
In 1980, the annual long-term negotiated price mechanism of iron ore began to take shape. Every year, the global major mines (iron ore supply side representatives) and major steel mills (demand side representatives) negotiate to determine the annual iron ore supply price. This process is also called "iron ore negotiation". The fixed price is the industry index, which is widely referenced and adopted in other trade negotiations.
However, it was not until 2003 that China joined the "iron ore negotiations". At that time, China was already the largest producer and consumer of steel. However, from 2003 to 2009, China was almost defeated in the annual price game. As the largest iron ore buyer in the world, it had no pricing power.
Who were the buyers and sellers at that time?
Seller:
BHP Billiton (BHP Billiton)
BHP Billiton was formed in 2001 by the merger of two giant mining companies-BHP and British Billiton Company, which was then the largest mining company in the world.
Companhia Vale Do Rio Doce
At that time, the world’s largest iron ore producer and exporter was also the largest mining company in the American continent.
Rio Tinto mining company (Rio Tinto)
It was founded in Spain in 1873. In 1954, the company sold most of its Spanish business. From 1962 to 1997, the company merged several influential mining companies in the world, and in 2000, it successfully acquired the Australian Northern Mining Company, becoming a global leader in the exploration, mining and processing of mineral resources.
Buyer:
China Iron and Steel Industry Association.
Domestic steel enterprises.
What role did Hu Shitai play in the negotiation?
Hu Shitai was born in 1963, originally from Tianjin, China. He graduated from Peking University and went to Australia to study. After graduation, he went to work in Hammersley Iron Mine, Australia’s second largest iron ore producer. After Rio Tinto acquired Hammersley Iron Mine, Hu Shitai became an employee of Rio Tinto. Joined Australian citizenship in 1997,
Hu Shitai has worked in Rio Tinto for quite a long time and is familiar with major domestic steel mills and ore traders. When the case was investigated, Hu Shitai was the chief representative of Rio Tinto, an Australian iron ore enterprise, and the general manager of Rio Tinto’s Hammersley iron ore business in China. At that time, he was a member of Rio Tinto’s "iron ore negotiations".
▲ August 5, 2010, Shanghai, Rio Tinto China Office (Source: Oriental IC)
It is this one-sided negotiation pricing mechanism that makes Hu Shitai see "business opportunities".
The case broke out in 2009.
On July 5, 2009, four employees of Rio Tinto Shanghai Company were detained. Among the four people detained, Hu Shitai was included. At the same time, the public security department also took away his computer.
Subsequently, Xinhua News Agency reported that Hu Shitai and other four people were detained because they used improper means to win over the insiders of China iron and steel production units during the iron ore import and export negotiations between China and foreign countries since 2009, and used this to spy on and steal China’s state secrets.
At that time, an insider revealed to national business daily (micro-signal: nbdnews) that the computer of Rio Tinto’s Shanghai office taken away by the relevant departments contained dozens of steel enterprises with long-term contracts with Rio Tinto. These data relate to the detailed procurement plan, raw material inventory, production arrangement and other data of the enterprise, and even the monthly steel output and sales of some large steel enterprises are very clear.
"(Rio Tinto) knows the situation of steel mills in China like the back of his hand," said the insider. "Mines even know their companies better than the bosses of some enterprises." Some people who have close contacts with the mine also said.
At that time, a relevant person of a steel enterprise said, "In our company, there are no more than 10 people who can know the details of raw material inventory, production arrangement and sales." Mines can master these enterprise secrets, and may have already bought off the specific production and operation personnel of related enterprises.
Many people in iron and steel enterprises said that Hu Shitai was "very happy" in China’s iron and steel industry, and he had a good personal relationship with many heavyweights in the steel industry, including Tan Yixin, then assistant general manager of Shougang International and general manager of mining import and export company. A few days before Hu Shitai was detained, Tan Yixin was also formally arrested by the procuratorate for allegedly providing commercial secrets to Hu Shitai and others and bribing state employees.
Having monopolized the global mineral resources, and now knowing the situation of China iron and steel enterprises clearly, how can China enterprises succeed at the negotiating table?
Let’s talk about Hu Shitai’s bribery crime.
The court found through trial that from 2003 to 2009, Hu Shitai and Chinese employees Wang Yong, Ge Minqiang and Liu Caikui took advantage of their positions to solicit or accept money for many times in iron ore trade with China to seek benefits for others.
Among them, Hu Shitai received RMB 6.46 million, Wang Yong received RMB 75.14 million, Ge Minqiang received RMB 6.94 million and Liu Caikui received RMB 3.78 million.
There are 20 domestic steel enterprises that pay bribes to them. There are many ways for Hu Shitai to accept bribes and make profits for others. Here is an example:
After Guofeng Iron and Steel signed a long-term contract with Rio Tinto with an annual capacity of 1 million tons for five years, Hu Shitai asked the company for the calculation standard of the benefit fee, which was 30% of the profit of a ship. In order to become a long-term cooperative company with more favorable goods, Guofeng Iron and Steel Co., Ltd. was turned around by many people and companies, and nearly $800,000 in benefits was paid to Hu Shitai.
Liu Caikui, one of Hu Shitai’s four people, mostly accepts bribes from enterprises without iron ore import qualifications. They must rely on the names of some steel companies that have entered the long association sequence to purchase iron ore from Rio Tinto. It is natural for the relevant enterprises to pay Liu a certain fee after getting the ore.
In order to get the iron ore contract, he paid bribes to Hu Shitai and others, reflecting the passive situation of China steel enterprises at that time:
Around 2004, the long-term price of iron ore was much lower than the spot price, and the highest price difference exceeded 100 US dollars/ton. Iron and steel enterprises and traders who are qualified to import iron ore and hold long-term orders resell iron ore to the spot market, which is even more profitable than doing the main business of steel.
Before the financial crisis in 2008, Rio Tinto rarely directly signed long-term agreements with traders and small steel enterprises. With the advent of the financial crisis, when the long-term cooperative price was higher than the spot price, large steel enterprises in China and other long-term cooperative customers defaulted in a large area. In order to obtain the maximum benefit, Rio Tinto began to contact with small and medium-sized steel enterprises in iron ore negotiations, and as long as it reached a certain amount, it could make some discounts (sell the ore) to small and medium-sized steel enterprises. As a breakthrough of "iron ore negotiation".
▲ Image source: Photo Network
From being detained on July 5, 2009 to serving his sentence on July 4, 2018, nine years later, Hu Shitai walked out of the cage. He may find that the iron ore market has changed. And the change happened from the time he was sentenced.
In 2010, China rejected the annual benchmark prices agreed by the three major mines, and the annual negotiations of the Iron Ore Association broke down, and the pricing model linked to the index was adopted. Spot iron ore is priced on the basis of index. The purpose of this pricing method is to reflect the spot market situation and the relationship between supply and demand.
At that time, another giant BHP Billiton also said that nearly half of the company’s customers had begun to adopt a pricing system linked to the spot market. This shows that the old mechanism for setting the annual price of iron ore is losing its meaning.
With the development of spot market and the rise of index pricing, iron ore derivatives trading came into being. In 2009, Singapore Stock Exchange launched the world’s first iron ore swap contract. In the domestic market, Dashang launched an iron ore futures contract in 2013, which was denominated in RMB and delivered in kind.
Every time Xiaobian (micro-signal: nbdnews) noticed that although the iron ore negotiation is controlled by people no longer exists, the international crude oil price has risen sharply this year, and the pricing power of bulk commodities is still in the hands of international energy giants and financial predators. How to reverse this situation? How to safeguard the core interests of enterprises in China?
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