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What may be little known however is, in its pursuit to meet the insatiable demand for resources, China is also intently hunting for resources within its borders. And that is giving rise to a booming mining industry, changing not only the country’s oft-criticized mining practices but also opening up a plethora of opportunities for foreign investment.
That’s the finding of the latest study on China’s mining industry by the London-based Business Monitor International (BMI), a business information publisher, which also says that consequent to the realization that the country has to depend as well on internal resources to ensure resource security, China’s national government is trying to make its mining industry more competitive.
It is indeed an irony that despite being a natural world leader in terms of both reserves as well as production of several metals and minerals, China is a voracious importer of resources from all around the world. According to the Foundation for Environmental Security and Sustainability (FESS), a U.S.-based public policy foundation, China has been most aggressive in Africa, where the country perhaps has the most dominant presence in resource mining. China has also secured access to large reserves of mineral resources in Latin America and Southeast Asia. In recent times, China has secured important oil interests in Iran and Russia as well.
A big reason why China has been reaching out is that its own mining capacity has been, and still is to a large extent, inadequate. “Although China may not have enough for its needs, the fact is, the country has quite substantial reserves of major commodities,” says Mathew Brooks, head of industry at BMI. “But China simply does not have the mining capacity to mine much of its reserves and supply its demand for resources.”
The need for securing a resource base, however, is just part of the reason why China is looking within. The country’s policy of sucking in whatever it can from abroad is also hurting its interests indirectly; its huge imports are to some extent fueling global inflation which in turn is making its raw materials more expensive.
“Essentially the Chinese demand is one of the key drivers of the demand for metals and minerals globally. The big debate at the moment is whether the global commodities boom is a speculative bubble or whether it is actually anchored upon demand and supply fundamentals. While there is to some extent a bit of bubble going on, the fact that prices are rising across a range of commodities means that the rise is pulled mainly by demand,” says Brooks. “And the Chinese demand is a major contributor to that price rise.”
According to BMI, it makes sense for China to mine more of its own resources in a number of categories, rather than depending heavily on imports. China occupies the world’s number one position in many segments of the mining industry. It is the world’s largest producer of coal, copper and aluminum. Besides, China has recently unseated South Africa as the world’s largest gold producer, with output, according to Bloomberg, gaining by 13 percent to 280.5 metric tons in 2007 as its demand for gold jumped 23 percent, making it the world's second-largest consumer.
But this may be just the tip of the iceberg. “With vast properties in central and western China yet to be prospected and with exploration of most mines in the eastern region being conducted at only 300-500 feet (90-150 meters) below the ground level, the extent of total mineral reserves on the mainland remains a grey area,” says the BMI report.
Reports suggest that the amount of identified resources that are just waiting to be mined in China is phenomenal. For instance, People’s Daily Online said in February that China has identified 60.7 billion tons of iron ore reserves, and is expected to identify more than 100 billion tons with better exploration. Simultaneously, as per the Ministry of Land and Resources, use of international modeling to explore new deposits could also augment China’s identified reserves of copper ore by 20 million tons and bauxite by 200 million tons by the end of 2010.
Nevertheless, it is also true that for China, mining on its own is easier said than done. “For one, much of its reserves are in fairly difficult places to extract and two, the big thrust of the Chinese foreign policy at the moment is to increase ties with other states – most importantly Africa – that can help its companies to access foreign mineral reserves,” says Brooks.
“And this opens opportunities for foreign companies to chip in with their investments and technology,” he added.
A few large foreign mining companies like Australia’s Sino Gold and Canadian Eldorado Gold Corp., for that matter, are already running successful operations in China. But the mining sector is essentially dominated by four local mining companies: Shandong Gold Mining, Zijin Mining, Datong Coal and Zhaojin Mining Industry Company.
However, China’s mining industry also has its downside. “Because of the constant price rises in mining products such as coal and iron, which provide opportunities for high profits, illegal and unlicensed mining still exists in China and poses a serious concern,” says the BMI report. Reports suggest that over the last three years the Ministry of Land and Resources has identified over 65,000 unlicensed mines, 4,500 unauthorized excavations, about 1,000 unauthorized prospecting sites, over 1,300 illegal transfer issues of mining rights, and has shut down over 8,000 illegal mines.
Illegal mines have been major contributors to China’s mining-related accident rate as well, which until recently was among the highest in the world. Says Jennifer Li of FESS, “China has a poor record in relation to environmental, social, health and safety issues (in its mining industry).”
But the good news is that China has realized that if it does not improve its mining practices and follow international norms for responsible mining, this may “result in increased tensions and conflict in those parts of the world where Chinese mining companies are operating, with potentially negative consequences for China’s own interests and economic development,” says Li.
For this, the ministry has outlined plans to start a geological exploration fund worth US$260 million that both state-owned and private mining companies can use to explore and finance new projects.
The Chinese government has encouraged mergers and acquisitions as well in the industry as a step toward optimal use of mineral resources. The initiative includes opening up the mining industry to foreign investment, which would result in improved trade in mineral products and services and help with the import of advanced technology. China is also keeping a close watch on environmental protection and the rational use of resources, pumping in an estimated S$97.1 million in 2006 for the environmental treatment of abandoned mines.
Recent initiatives to improve the mining sector also include: investments of US$60 billion over 2007 to 2011 on safety improvement mechanisms; completion of a set of mining industry reforms by the end of 2008; formulation of new mining laws adhering to international norms; the adoption of industry best practices and combining these with local laws to form stringent environmental norms. Mine safety is also high on the agenda of the authorities in that by the end of 2008 the government reportedly plans to close down around 23,000 small coal mines, which have proved to be extremely dangerous in the past.
The United Nations is chipping in too, launching a $14.42 million project last year that will provide coal miners with improved education and training in the five Chinese provinces of Anhui, Guizhou, Henan, Liaoning and Shanxi.
All this naturally means attractive growth opportunities. “China’s mining industry has expanded in recent times to meet the requirements of a rapidly growing economy,” says the BMI report. “Though the forecasted annual average growth for the 2007-2011 period is comparatively low at 4.75 percent, the industry is expected to generate a sizeable chunk of the national GDP during this time, reaching a value of over $587 billion in 2011 – up from $449.57 billion in 2007.”
