China's booming economy has attracted billions of dollars of foreign investment [EPA]

On July 5, China detained the four employees, including senior Rio executive Stern Hu, an Australian citizen, and accused them of bribing Chinese steel mills in exchange for pricing information.

China says their actions amounted to theft of state secrets.

Rio Tinto has strongly denied its employees engaged in any wrongdoing and much of the Western media is crying foul play - "China's War for Ore", accused the Wall Street Journal in one angry editorial.

But should overseas businesses really be all that surprised by the turn of events with the Rio arrests?

In the three decades since Reform and Opening, China's economy has steamrollered to the point where it is now the world's third largest after the US and Japan.

Drawn by that growth, foreign investors have poured in money despite widespread and long-standing criticism that China plays by different rules.

Known business environment

Four employees of Rio Tinto have been accused of stealing "state secrets" [AFP]

Few can claim to not know that the Chinese economic environment lacks transparency, is plagued by endemic corruption and is not a level-playing field.

Compounding this is the fact that many of China's big energy and resource companies are state owned and are in effect a branch of the country's non-democratic government rather than privately-run corporations.

So why has the Rio case caused such an uproar?

Matthew Crabbe, managing director of market research firm Access Asia, says Western firms have had it so good for so long in China that they have forgotten where they are actually doing business.

"China is still a Communist country with a capital C, and by definition has a political system that is authoritarian, and by extension controlling," he says.

"That many of the foreign businesses in China tend to forget that they are stationed in a communist country is clear - dazzled by all the shiny lights and tall, marble-clad buildings."

Playing the game

Furthermore, he argues, for a long while overseas companies have in some ways benefited from China's lack of transparency and corruption, playing the game to their own advantage.

Many companies can get away with a lot more in China than what they can get away with back home, for example in bypassing environmental regulations and labour laws.

"The exploitation has gone on on both sides," Crabbe says. "I don't think foreign businesses crying foul now is particularly fair either, because they have in the past gone in and not been entirely ethical, shall we say."

Outside China, few are taking China's accusations against the Rio executives seriously.

Politicians and newspaper editorials have condemned the arrests, pointing out the charge of "stealing state secrets" is one which is usually used to imprison political dissidents and that the detained executives have no chance of a fair trial.

Some have speculated that the move is retaliatory – that Beijing is angry that the Chinalco deal fell through and that Rio Tinto would not budge on iron ore prices.

Billy Mak, a professor of finance at Hong Kong Baptist University says China would have viewed the snubbing of the Chinalco deal as a political issue, not an economic one.

But he adds that the Rio Tinto executives may indeed have been guilty of bribing iron ore officials.

"If this is the case, they may have violated the laws in China," he says.

Motives unclear

China's business environment is well known to companies operating in the country [EPA]

"There's always the view that the [Communist] party is not just going after Rio Tinto but also after its own," he said.

"The system is fraught with corruption and they are going to clean it out."

The analyst agrees with many observers who feel that the case has at least an element of China asserting itself as a major economic power.

"In my personal view it's more coercion to gain some sort of advantage in their [iron ore] price negotiations and trying to limit competition," he says, adding he suspects it will all backfire and China will have to pay much more for its iron ore than it wants to.

Their purpose is to push iron ore prices down, he says, but "China needs a lot of iron ore and… and now you have [these iron ore traders] all looking at the way China is handling this situation – the way it had tried to use coercion to drive the price down... [but] it may even drive the price up."

So has China cut off its nose to spite its face?

For a start China does not care about all the bad press, says Access Asia's Crabbe.

The world is mired in a global economic crisis while China is doing "fine, thank you very much" he says.

'Warning shot'

"I take this whole manoeuvre to be a warning shot to let foreign interests in China understand that the Chinese government is the one in charge of the Chinese economy, not anyone who thinks they can control it from outside," says Crabbe.

That still raises the question of whether Western business interests might be so spooked by the Rio arrests they will begin retreating from China.

Mak says there may be a slow down in the sensitive "strategic" industries in the immediate aftermath. 

"Industries such as telecommunications, finance and natural resources, which are classified as strategic and related to national security will be most affected," he says.

But despite the vocal protests and political posturing, most analysts agree any drop in business from the Rio case is unlikely to be significant or long-lasting.

"Too many countries and companies are hanging on, hoping that China will help lift them out of recession - rightly or wrongly - or simply have too much money already riding on China or invested in China to make any serious counter-threat," says Crabbe.

"Let's face it, the world economy needs China right now more than China needs it, and the Chinese know it."