China’s accusation that four Rio Tinto employees stole state secrets has spread fear among the expatriate business community and threatens to chill Australia’s relations with its largest trading partner.

The Chinese Ministry of Foreign Affairs said yesterday that it had proof of wrongdoing by Stern Hu, an Australian citizen, and his three Chinese co-workers who ran the Shanghai trading office for the world’s second-biggest iron-ore producer, which is listed in London and Sydney. The four were detained on Sunday.

“Competent authorities have sufficient evidence to prove they have stolen state secrets and have caused huge losses to China’s economic interests and security,” Qin Gang, a spokesman for the ministry, said.

The detentions came as Rio was acting as lead negotiator for global iron-ore suppliers in 2009-10 price negotiations with Chinese steel producers. There is no confirmation that the detentions are linked to those talks. However, Rio’s iron-ore team apparently had avoided meeting inside China for more than a month, concerned that their phones and e-mails were being monitored and that information was finding its way back to the China Iron & Steel Association. Some have concluded that it was Rio that fell victim to espionage.

“People are now truly afraid to get involved in deals which might have them handling Chinese government business,” one Beijing-based Australian said. “Nobody wants to touch any government paper.”

Expatriate business leaders played down the fears, citing generally good Sino-Australian relations under Kevin Rudd, the Australian Prime Minister, a former diplomat in China who speaks Mandarin. “In cases like these, anybody with years of experience in China knows it’s seldom some grand conspiracy,” one executive, who declined to be named, said. “We’re hopeful there’s a simple explanation.”

Still, Rio and the Australian Government said that they had received no explanation of the charges. The company said yesterday that it knew of no evidence to support spying accusations against its employees.

Roger Wolfe, chairman of the Australian Chamber of Commerce in China, said that it would be imprudent to discuss the case. Anthony Loo, Mr Hu’s boss at Rio Tinto in China, could not be reached for comment.

China classifies a range of information as state secrets and gives its prosecutors leeway in what cases to pursue. A spying conviction could bring a sentence of life in a Chinese prison.

However, China warned against making too much of the case. Mr Qin said: “It’s improper to exaggerate this individual case or even politicise it, which will be no good to Australia.” He also rejected talk that the detentions were payback for Rio’s decision last month to rebuff a proposed $19.5 billion (£12 billion) investment by Chinalco, the Chinese state-owned group.

Mr Rudd said that he had no plans to call President Hu Jintao to discuss the case. “The advice from our consular officials is to work step by step, and we will raise it at whatever level of the Chinese leadership is necessary at the relevant time,” he said.

Australian diplomats will be allowed to visit Rio's Mr Hu today.

Meanwhile, a Chinese steel executive who had “close contact” with Mr Hu has been detained by Beijing police, according to 21st Century Business Herald, the Chinese newspaper, which cited unidentified sources.

Tan Yixin, general manager of Shougang International Trade & Engineering Corporation, oversaw iron-ore purchases, the newspaper reported, giving no indication whether the two cases were linked. Mr Qin declined to comment on the detention.

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