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China’s arrest of a top executive of Anglo-Australian miner Rio Tinto on suspicion of spying is likely to cool the international business community’s love affair with the world’s most populous nation, according to analysts.

Australian Stern Hu’s detention in the midst of tough negotiations with Beijing showed China was willing to flex its political muscle and play “hardball” in tough times, experts from across the Asia-Pacific region said.

While the arrest will not stop foreign companies from lining up for access to a market still growing rapidly amid a global downturn, it is a warning that political power and business are inextricably linked in China, they said.

John Lee, a China expert at Australia’s Center for Independent Studies, said it was no coincidence that Hu’s arrest came after Rio Tinto snubbed state-owned Chinalco’s $19.5 billion bid to increase its stake in the company.

Lee said China’s leaders, unhappy about the collapse of the Chinalco deal and Rio’s tough stance in iron ore negotiations, appeared to be sending a message to the business world that they would not be pushed around.

“The timing is uncanny. It’s hard to say whether there’s any definite connection until we see this evidence, but I don’t think the timing is coincidental,” he said. “The Chinese will play hardball much more. I think negotiations will be less friendly.”

Hong Kong Baptist University associate finance professor Billy Mak said the case highlighted growing tension between China and overseas natural resources companies.

With Beijing increasingly looking to own international resource companies, rather than simply buy raw materials, Mak said Hu’s arrest would make international businesses more cautious in dealing with China.

“Although we cannot say whether it is China’s revenge or retaliation, the incident will definitely dampen the commercial relationship between Beijing and the overseas companies,” he said.

The analysts cited several previous cases in which overseas executives had been detained or arrested in business dealings.

Arch Shih, an analyst at Taiwan International Securities, said “investors had better bear possible social and political risks in mind and prepare themselves for the worst. It is a principle to any investor in any place.”

Beijing-based research consultant Dragonomics said China’s espionage laws were more wide-ranging than those in most countries, creating a potential minefield for foreign companies.

Australian Financial Services Minister Chris Bowen said Hu’s arrest was a warning for foreign companies involved in China.

“It should be a concern for the Chinese government that if foreign businesses feel that their degree of uncertainty is high, it will change the way that foreign businesses around the world approach business in China,” he said.

Agencies