Shortly thereafter, China criticized Australia for giving a visa to Rebiya Kadeer, the former Uighur businesswoman whom Beijing has accused of being responsible for the July 5 riot in Urumqi.

Chinese officials demanded that a film about her at the Melbourne International Film Festival—”The Ten Conditions of Love”—be withdrawn from the Melbourne International Film Festival and that she not be allowed to address the National Press Club in Canberra.

These events had an effect not only on Australians but on the international business community as a whole. There was much speculation that China was lashing out at Australia because Rio Tinto had rejected an offer from a Chinese state-owned company, Chinalco, to expand its stake in Rio Tinto from 9.32 percent to 18% percent in China's largest foreign investment in history.

If China's intention was to send a message to the international business community, it was hugely successful. Many multinational companies became fearful that they, too, could become targets in similar state secrets cases.

This is because the definition of state secrets is extremely vague. They may have to do with defense, foreign policy, economic and social development, science and technology, criminal investigations or “other matters” classified as state secrets, even if the information is already in the public domain.

The case took a bizarre turn when a Web site associated with China's National Administration for the Protection of State Secrets Bureau alleged that Rio Tinto had engaged in spying in China for at least six years and over that time caused China to spend an additional US$100 billion on iron ore imports, a sum that it said was equivalent to 10 percent of Australia's GDP.

This allegation was peculiar because, in the last six years, China's iron ore imports from Australia amounted to about US$90 billion. So, if the figures on the state secrets Web site are to be taken at face value, it would mean that China should have received the iron ore for free and on top of that been awarded a US$10 billion bonus.

Apparently, the Chinese authorities realized the awkwardness of such charges and the article containing these allegations was taken down from the Web site the following day.

And, on August 11, when Mr. Hu and the three other Rio Tito employees were formally arrested, the charges leveled against them were suspicions of commercial bribery and trade secrets infringement rather than espionage, the punishment of which could be death.

Of course, China like all countries has the right to protect genuine state secrets. The problem is that the punishment is so harsh and the law is so widely drafted that almost anything can be considered a state secret.

So far, state secret charges have primarily been leveled against Chinese citizens, who are often not allowed to be legally represented, while by law the state does not have to present its evidence in court.

Such a state of affairs is certainly not acceptable where foreign nationals are concerned. And a law that cannot properly be used to defend the country's interests against foreigners is worse than no law.

What China needs is a revised state secrets law that defines much more precisely what state secrets are, without the use of ambiguous terms. China also needs to differentiate between espionage and legitimate market research.

By sheer coincidence, the government is actually planning to amend the state secrets law. However, the proposed amendments appear aimed at strengthening rules for protecting state secrets. They may, in fact, make the law even worse.

However, now that the Stern Hu affair has publicized in rather stark terms the defects of the state secrets law, Beijing should take this opportunity to narrow the scope of state secrets so as to eliminate excessive secrecy and to get rid of ambiguity.

Doing so would also go far to reassure the world—not just the business community—that China does not intend to throw its weight around after it becomes not only a major economic and trade power but a formidable political and military power as well. If that is done some good may actually come out of the entire Rio Tinto affair.

Frank.ching@gmail.com