Stern Hu, the Rio Tinto executive accused of industrial espionage, faces a further two months in a Chinese jail as investigators build their case against him.

Mr Hu, the head of Rio’s iron ore negotiating team, was arrested in June amid rising tensions between the mining giant and China. The team, which included Mr Hu, an Australian citizen, and three Chinese nationals, were initially accused of stealing state secrets.

Rio has insisted that its employees did nothing wrong.

In an attempt to defuse diplomatic tensions between Australia and China the charges were subsequently downgraded to industrial espionage and bribery, although the Rio employees still face lengthy prison sentences if found guilty.

An Australian foreign office spokesman said: “We were informed that the Chinese authorities had extended the investigation by another two months. This is in addition to the earlier one-month extension.”

Stephen Smith, the Australian Foreign Minister, has said that he will raise the issue with his Chinese counterpart Yang Jiechi on the sidelines of the Asia-Pacific Economic Co-operation (Apec) forum in Singapore.

The arrests came after months of failed negotiations between China, the world’s largest iron ore consumer, and Rio, the Anglo-Australian miner.

Rio had offered a price cut of 33 per cent but the Chinese were holding out for a 50 per cent cut, which could have saved China billions of dollars.

Rio’s relationship with its largest customer had also been complicated by its decision to walk away from a deal with Chinalco, the Chinese state-owned metals group. That deal would have seen Rio raise $19.5 billion from Chinalco in return for a greater shareholding in the company. Some analysts have interpreted the arrests as revenge for Rio’s lack of co-operation.

Australian officials said that the full details of allegations against Mr Hu and his team may not be known until trial, which could be as far away as next April. The arrests have strained diplomatic relations between Australia and China but officials insist that it will be business as usual between the two countries.

In a fence-mending visit, Chinese Vice Premier Li Keqiang called for a new era of co-operation between the key trading partners, citing “extensive” common interests. Rio declined to comment yesterday.

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