Australians working in China are terrified. The arrest of the general manager for Rio Tinto’s iron ore operations in China has sent shockwaves through the expat community.

Phones are being tapped, emails are being intercepted and people are scared to even mention Stern Hu (his Chinese name is Hu ShiTai), the Australian national who has been arrested for allegedly stealing state secrets, along with three of his Chinese co-workers.

It’s quite rattling to hear friends and contacts in China speak with such fear in their voices. Anyone who has worked as a journalist in China knows of such stories: being followed by secret police, having notes and tape recorders confiscated, being denied visas.

But this is the first time I’ve heard colleagues and friends in the business sector say “my phone line is compromised”, or “I’m putting myself at risk by talking to you” or “please, you have to understand that my family, my friends, my home, they’re all in China”. These are people who’ve been in China for decades. They can’t just get on a plane and come home to Australia if they displease the Chinese government.

Rowan Callick, former China correspondent for The Australian and a fount of knowledge on all things Motherland, rightly points out that overseas businesspeople in China have generally been treated with care by the Chinese government, thanks to their contribution to the nation’s economic ascent to power.

But make no mistake — the balance of power has shifted. Amid tense iron ore price negations and the breakdown of Rio Tinto’s deal with Chinalco, which constituted a serious blow to China’s pride, a critical factor in relationships with the Chinese (the notion of ‘face’ or mianz), China is flexing its muscles and showing Australia and the world who’s boss.

Stern Hu is well-known in the Australian expat community. Many of the people I spoke to have either run into him at meetings or functions, or know him personally. That, combined with his seniority as an executive — he is second in command at Rio Tinto only to China head Anthony Loo — makes him a strange and conspicuous target for a government looking to make a point.

While Australia is doing all it can to try to gain access to Hu and see that his interests are represented, our government must also hold grave fears for his three co-workers. They cannot be abandoned — they were contractors working for an Anglo-Australian company.

As more details filter out of China slowly (the nature of the charges against him were only confirmed overnight), the eyes of the world and of course Australia will be firmly planted on China to see how this issue is resolved. It could forever change the way foreigners do business there and chill relations between Australia and its biggest trading partner.