Sydney  - Being cast into a Shanghai prison and held there for over a week without charge or legal representation probably didn't come as a huge surprise to Australian mining executive Stern Hu.

The head of Rio Tinto Ltd's iron ore business in China was born in the communist country, is a Beijing University graduate and has lived in the commercial capital for over a decade. He knows that civil liberties are easily ignored in a one-party state.

The real shock is within Australia, where China was seen as emerging as a normal country where expatriate business executives had no fear of being picked up by the secret police.

Hu has not been charged and was only allowed to talk about his health and welfare during the single consular visit that China has allowed.

Trade Minister Simon Crean, who happened to be in China, didn't score any higher than a middle-ranking Shanghai official when he tried to intercede on Hu's behalf at the weekend.

Foreign Minister Stephen Smith complained this week that what he knew of the allegations against Hu he had gleaned from government websites or from the Chinese media.

Hu is alleged to have caused a "huge loss to China's national economic security and interests" either by stealing confidential information on iron ore demand and supply or securing that market intelligence by bribing steel industry officials.

The arrest comes as Rio Tinto is negotiating long-term contracts with the Chinese steel mills that are its principal customers for iron ore.

Asia pundit Greg Sheridan, a columnist with The Australian newspaper, speculated that the arrest was payback for China's failure last month to double its shareholding in Rio Tinto.

"The Chinese government has sent a message of crude intimidation and deep displeasure against Australia with the arrest of Rio Tinto executive Stern Hu," Sheridan wrote.

It's a view echoed by opposition member of parliament Barnaby Joyce, who last month went as far as to appear in television commercials railing against the notion of China becoming Rio Tinto's biggest shareholder.

"This is a political setup by China," Joyce said. "Retribution for the actions of Rio over what they believe is a deal that hasn't gone their way."

The play for Rio Tinto - it would have been China's biggest ever foreign investment - failed not because Canberra blocked it on national security grounds but because Rio Tinto decided at the last moment to partner rival resources company BHP Billiton Ltd.

At the time, the rejection was seen as the best possible outcome for Prime Minister Kevin Rudd. It meant he avoided either offending China by blocking the takeover play or offending fellow Australians like Joyce who were up in arms at the prospect of the Chinese Communist Party dominating the resources sector.

Though Rudd escaped vilification - he never let it be known whether he would have used his veto or not - Rio Tinto did not. It was characterized as a "dishonourable woman" who had led China on and then turned down a 19.5-billion-US-dollar dowry in favour of another suitor.

Rudd, a China scholar and Mandarin-speaker, knows not to court public embarrassment by demanding either Hu's release or that he be charged. Neither Rudd nor Smith has made direct contact with the Chinese leadership over the issue.

What's building is the biggest foreign policy challenge that Rudd has faced since his election in November 2007.

Russell Smith, regional director of strategic issues consultancy IHS Inc, said Australia was about to learn the limits of its influence in China.

"Diplomacy takes a back seat when you talk about national security," Smith, a former military attaché in Beijing, said. "A better reflection of the real state of the relationship is that we'll dance to China's tune." (dpa)