Australian Prime Minister Kevin Rudd said on Tuesday efforts to free an Australian detained in China over claims of spying took precedent over bilateral ties and he was not worried about antagonizing Beijing.

Chinese investigators have questioned executives at several steel mills in a widening probe of alleged leaks of state secrets to the world's second-largest iron ore miner Anglo-Australian Rio Tinto, steel officials and Chinese media said.

The Shanghai State Security Bureau earlier this month detained Australian Stern Hu, Rio's iron ore salesman in Shanghai, and three of his Chinese colleagues, alleging they pried and stole state secrets.

Australia's national interest always and under every circumstance comes first, Rudd told local radio. That means the wellbeing of any Australian citizen. They come first.

Rudd said he would pursue every avenue to free Hu in a case that has cast a shadow over bilateral trade worth $53 billion last year. China is Australia's major trade partner.

The investigation has left 2009 iron ore price negotiations between China's iron and steel association and miners Rio, BHP Billiton and Brazil's Vale in limbo.

Rudd, a former Beijing diplomat and fluent Mandarin speaker, is under domestic pressure to contact Chinese President Hu Jintao to seek the Australian's release.

Rudd said he had raised the case with China's vice foreign minister in Italy last week and that Canberra was vigorously pursuing diplomatic channels.

We will take this up at whatever level of the Chinese government is necessary as facts in each level of this complex case come clear, Rudd said. Our interest is the individual concerned -- Mr Hu and his wellbeing. We're not interested in political grandstanding.

Asked if he was worried about antagonizing Beijing, Rudd said: Absolutely not.

CHINA BROADENS INVESTIGATION

The broadening investigation targets some of China's largest mills, all influential members of the China Iron and Steel Association (CISA), which represents the country's industry in annual negotiations with global iron ore miners.

That could increase tensions between CISA and the steel mills, many of which are impatient with the association for so far failing to reach a new price settlement for 2009 with Rio, BHP Billiton and Brazil's Vale.

The investigation may reflect a rift between mills which want to settle on a term price to ensure normal supply and CISA, which wants to centralize control over the fragmented and intensely competitive industry.

Uncertainty over what information should now be considered secret has also unnerved the industry and foreign investors.

A Foreign Ministry spokesman said Beijing was not trying to make life difficult for foreign companies, which have poured into China in the past decade to tap into the rapid growth that has transformed the country into the world's third-largest economy.

The Chinese government protects the legal rights of foreign firms, in accordance with the law, spokesman Qin Gang said.

At the same time, foreign firms have the responsibility and obligation to respect Chinese laws and rules.

Qin said a media report that Chinese President Hu had signed off on the detentions did not accord with the facts.

SECRETS AND A RIFT

Investigations have touched flagship Baosteel Group, as well as Anshan Iron and Steel Group (Angang), its partner Benxi Iron and Steel Group, Shandong-based Laiwu Iron and Steel Group and Jinan Iron and Steel Group, the China Daily said.

The alleged secrets relate to CISA's negotiating stance as well as commercially sensitive information such as mill production plans, iron ore stock levels and import information.

This is a case involving foreign companies, and isn't a small matter, CISA secretary general Shan Shanghua told the 21st Century Business Herald.

Meanwhile, CISA and the Ministry of Commerce are reviewing iron ore import licenses to identify speculative importers, and are likely to cut about 20 licenses, most belonging to trading firms. Similar reviews have been conducted in previous years, when spot ore imports spiked during annual talks.

CISA took over from Baosteel as the lead negotiator in this year's round of talks, but failed to reach an agreement by a June 30 deadline as it attempted to get a better deal than a 33 percent cut agreed to by Japanese and South Korean rivals.

Many of the mills and trading companies were prepared to sign on the same terms as their Asian rivals, confident the traditional system whereby all mills accept the initial settlement meant they were not at a disadvantage, said a Chinese analyst, declining to be named given the ongoing investigations.

A senior official at Shougang Group, China's eighth-largest mill, was detained last week for allegedly leaking information. He was a member of the Chinese negotiating team, sources said.

The 21st Century Business Herald reported that Baosteel officials, including those involved in negotiating previous rounds of talks, had returned to work after being questioned.

A Laiwu official confirmed that some company officials had been asked by police to assist in investigations, but could not say how they were related to the case. Officials at the other mills could not be immediately reached for comment.

(Additional reporting by David Stanway in Beijing, Alfred Cang in Shanghai and Mark Bendeich in Sydney, Editing by Nick Macfie)

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