The Chinese President, Hu Jintao, personally endorsed the investigation into Rio Tinto that led to the arrest of the mining giant's Australian iron ore executive, according to Australian media reports

The issue threatens to become a political nightmare for Australian Prime Minister Kevin Rudd, who is facing increasing calls to intervene personally in the case of Stern Hu, who has been accused of commercial espionage and stealing state secrets.

Neither Mr Rudd — who today returned from a week-long overseas trip — nor Foreign Minister Steven Smith have spoken to their counterparts about Mr Hu, who has been detained for over a week. No charges have been laid against Mr Hu, who the Chinese authorities claim bribed Chinese steel companies during iron ore price negotiations this year.

Australian officials will meet with Chinese diplomats later today to press for more information about the case against him.

The Sydney Morning Herald newspaper reported today that the investigation into Rio was part of a major realignment of how China manages its economy, with spy and security agencies promoted to top strategy-making bodies

Mr Hu and three other Rio employees were detained as Rio was locked in intense negotiations with China’s steel mills about iron ore pricing for 2009-10, with China refusing to accept the benchmark price after it was taken up by steel makers in Japan, Korea and Taiwan.

According to the Sydney Morning Herald, the nine-member standing committee of China's Communist Party, led by President Hu, had recently taken more control over economic decisions at the expense of the State Council, led by Premier Wen Jiabao.

The inquiry into Rio began before the Ango-American company angered China by breaking off its $19.5 billion (£12 billion) investment deal with the metals firm Chinalco in favour of an iron ore joint venture with rival BHP Billiton, sources told the newspaper.

"This is certainly not revenge for the Chinalco deal not going through," the Herald quoted one Chinese government source as saying.

The collapse of the Chinalco deal was immediately followed by the establishment of a high-level group that would assess the political and economic risks of large overseas investment deals, the paper said.

Australia's Foreign Minister, Stephen Smith, said on Sunday that he was urging Chinese authorities to handle the case expeditiously, and to consider the wider risks for international business confidence.

"One of the issues for Chinese authorities to contemplate is the extent to which the circumstances of this case will cause the international business community to have any cause for concern," Mr Smith said.

Australia's Liberal opposition has repeatedly called for Mr Rudd, a Mandarin speaker who boasts a special relationship with Beijing, to intervene on Mr Hu's behalf.

Greg Hunt, an opposition frontbencher, today accused Mr Rudd and Mr Smith of being "paralysed" in the face of the Chinese Government and of not making any "meaningful contact" with authorities.

"Pick up the phone Mr Rudd, pick up the phone Mr Smith, speak to your Chinese counterparts and make it absolutely clear there must be procedural justice immediately," he told Sky News.

"They are worried about the relationship [between the two countries], they are not worried about the Australian citizen."

According to Chinese media reports, information from an internal meeting of the China Iron and Steel Association on the price negotiations was leaked, and the investigation has extended to several senior figures in the Chinese steel industry, including within the association itself.

A senior executive at Shougang, China's eighth-largest mill, has also been detained.

The Australian iron ore miner BHP Billiton and Brazil's Vale are watching events closely.

Australian consular officials met Mr Hu in detention on Friday, and Canberra reported him to be in good health, but Mr Smith said that there was no timetable for whether or not charges would be laid.

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