A Chinese court sentenced four Rio Tinto employees to 7 to 14 years in jail on Monday for taking bribes and stealing commercial secrets, a verdict the Australian government called harsh.

The Shanghai Intermediate People's Court said China-born Australian citizen Stern Hu, who headed Rio Tinto's iron ore operations in China, will serve 10 years, with parts of a 7 year bribery term and a 5 year secrets sentence running concurrently.

He will also be fined 500,000 yuan ($73,250), and have 500,000 yuan worth of assets confiscated.

Three other executives, all Chinese nationals employed by the Australian miner, were sentenced to between 7 and 14 years on bribery and secrets charges.

Australian Foreign Minister Stephen Smith, speaking shortly after the verdict was handed down, said the sentences were tough by any measure and that he had serious unanswered questions about parts of the trial.

The sentences will begin from the men's detention on July 5 2009, Australian consul-general in Shanghai Tom Connor said.

Western business executives also saw the sentence as harsh.

A slap on the wrist might have been expected, with both sides trying to put this behind them as soon as possible, but this is far longer than we thought, said Paul Bartholomew, Australia manager with Steel Business Briefing.

Rio shares were barely affected by the sentencing.

I don't think (there will be any impact), said Tim Schroeders, portfolio manager at Pengana Capital.

There's no implication that Rio Tinto was involved directly in what transpired. This will probably allow one lingering doubt to be resolved and people to focus on the fundamentals of the company.

CONCERN

The case has raised foreign investor concern over China's legal system, particularly the paucity of official information surrounding the secrets charges.

Leaked testimony of money handed over in cardboard boxes and plastic bags also spotlighted business practices of Chinese steel mills desperate to secure relatively low-cost and stable iron ore supplies from Rio Tinto, the world's second-largest miner.

The court said the leaking of trade secrets caused a great loss to Chinese mills, putting them in a disadvantageous position in iron ore pricing talks.

All four Rio employees pleaded guilty to receiving kickbacks but contested the amounts. Only one of the four, Liu Caikui, pleaded guilty to infringing commercial secrets in a portion of the trial closed to Australian diplomats.

The verdict may raise questions about Rio's business practices, although the company says an audit cleared it of wrongdoing.

Chinese firms have not emerged with their reputation unscathed however, with the court saying the list of companies that handed over bribes included the trading arm of Sinochem Corp, and private Rongcheng Steel.

The court will also rule on a second case, that of Tan Yixin, an executive at Shougang Corp, China's eighth-largest steel mill, who was detained around the same time as the Rio troup.

Chinese officials did not say when their trial took place.

Much of the foreign interest in the case stems from the commercial secrets portion of the charges, because government information controls add a layer of uncertainty and risk to operating in China.

Some of the information the Rio execs are thought to be accused of obtaining illegally -- including detailed mine production and operation rates -- is considered vital market intelligence in China, where official statistics are unreliable.

Foreign reporters were barred from all of the trial, held last week at the No. 1 Intermediate People's Court in Shanghai.

But Australian diplomats were also barred from the commercial secrets portion of the trial, a ban that legal scholars say contravenes China's own laws as well as consular agreements.

($1=6.826 yuan)

(Writing by Emma Graham-Harrison, Additional reporting by Chen Aizhu in Beijing; Editing by Ken Wills and Raju Gopalakrishnan)

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