For All the TNCs in China - A London Calling special - March 22 2004Published by MAC on 2004-03-22
For All the TNCs in China
A briefing on Chinese mining, markets and mineral demands
22 March 2004
[London-based Nostromo Research prepared this paper for the Mines and Communities web site. Responsibility for non-accredited comments rests with Nostromo].
China's galloping demand for metals and coal is both dictating the unprecedented "boom" in global base metal trade and, at the same time, providing incentives for new mineral exploration across the globe. Meanwhile the world's most populous nation has opened its doors to foreign mineral companies.
Chinese mines are the most hazardous in the world, with a uniquely appalling legacy of pollution, occupational ill-health and deadly accidents. Millions of people who have left the countryside, believing they can benefit from an urban-based economic "miracle" have found themselves in poverty and without jobs.
Spokespeople for the Chinese regime (not least its prime minister) express concern at the social and environmental consequences of the previous half-century's industrialisation under state capitalism (communism). In many respects the fears appear genuine. But not a word is voiced about the starkly imperialist occupation of Tibet - on which a significant proportion of China's access to minerals depends [see "Mining Tibet" published by the Tibet Information Network, London 2002]. Nor does the new regime seem to have an adequate (or humane) strategy for coping with its intended dissolution of thousands of privately-owned mineral enterprises which - albeit among the most dangerous and exploitative mines and smelters anywhere - employ hundreds of thousands of Chinese workers.
What are the dynamics and likely economic consequences of this unprecedented increase in imports, exports, and foreign venturing? There are growing concerns within and outside the country, at economic "over heating" - a term that has now become a recurrent theme. [Financial Times (FT) 15/3/2004]
Overshadowing debates at this March's National Peoples Congress was the growing conflict between companies (joined by local government representatives), and central government bureaucrats, charged with curbing investment in the "overblown" sectors. The Chinese premier, Wen Jiabao, has specifically singled out aluminium, cement and steel as candidates for urgent growth "restraint". [FT 4/3/2004]
A new dawn or impending catastrophe?
"The Chinese urban-rural divide is the worst in the world,"
[Jonathan Beardsworth, Standard Bank of London's Mining and Metals Advisor, quoted on Mineweb 11/3/2004]
"Every year 10 million people in China migrate from their village so the cities Within a decade China promises to become the world's largest trading nation However China is more complicated than just being a bet on growth Whatever China cannot produce is likely to become dearer...whatever China can produce is likely to become cheaper, and competition may keep profits low even if growth is high. China's industrialisation is likely to need more natural resources than the reconstruction of Europe and Japan after WWII. The best plays on China's development could well be global companies that control scarce resources While China's economy is on a powerful secular up trend, it is also quite volatile Profiting from China requires more than just a focus on growth... China's growth reduces prices for some good s and increases prices for others. Only companies exposed to the latter dynamic are likely to benefit from China's growth in the long term". [Advertisement by Morgan Stanley, FT 24/2/2004]
the arch-conservative of global mining, has staked its hopes on a prolonged China boom. The UK-based mining house predicts that by 2020, more than a billion people in Asia (excluding Japan) will have incomes of more than $5,000 a year".
" [Those in the] Pentagon worry that China may develop the economic and military wherewithal to challenge US global supremacy
[But].it is impossible for China to avoid a political-economic crisis within the next decade [because] no country has ever been able to go through the social, economic and political change that China will undergo without accidents that derail even the best laid plans".
[Moises Naim, "Foreign Policy" magazine (US), cited in Financial Times (FT) 15/9/2003]
"China is in a situation of severe over-investment" [Dong Tao, Credit Suisse First Boston (CSFB) in FT 22/1/2004]. "In 2003 more than 80% of the world's Foreign Direct investment (FDI) outside of the USA went to China".
"[T]he runaway pace of fixed asset investment has caused voracious demand for steel, aluminium, cement and other building materials
prompt[ing] ambitious expansion in those sectors [by] 96.6%, 92.9% and 121.9% respectively last year over 2002. This has generated high demand for electricity, contributing to power shortages in 21 provinces".
[Ma Kai, head of the National Development and Reform Commission, quoted in FT 9/3/2004]
"The truthful answer to the question [how long China can sustain very rapid rates of growth] is that we simply don't know. There is no precedent for a country China's size
industrialising at such an extraordinary pace."
[David Humphries, Rio Tinto chief economist in "Rio Tinto Review", January 2004]
"It does not matter whether a cat is black or white so long as it catches mice".
China's GDP in 2002 accounted (at 8%) for a 15% increase in world economic growth and around 60% of the world increase in export growth. But inflation has also commensurately increased: prices of consumer goods rose an average of 8% in the year November 2002 -November 2003. [FT 13-14/12/2003]
The country is the European Union's second largest trading partner and the largest single recipient of EU assistance [FT 5/3/04] In 2002 it became the biggest exporter (in aggregate) of goods to the US, overtaking Mexico. [FT 1/7/2003]
It has already become the world's third biggest importer of goods after Germany and USA. [FT 6/11/2993] and the world's leading importer of chemicals, predicted to account for 40% of the rise in global chemical demand between 2003 and 2006. [Goldman Sachs quoted in FT 3/2/2004]
Overall, according to Dong Tao of Credit Suisse First Boston Bank (CSFB), markets within China could expand by nearly a third in the next ten years. [FT 10/11/2003] However one financial observer has already warned that such growth is "built on what seems an undervalued exchange rate and consequent rapid accumulation of foreign exchange reserves". [Martin Wolf FT 19/11/03]
US Depository Receipts of Chinese stock, offered on the New York stock exchange have outperformed that of any other country, while Chalco (China Aluminium) was the best performing stock of its type in 2003. [FT 15/12/2003]
In 2003 China acquired an estimated 17% of global metals output (in addition to its own stocks), and increased its consumption of metals by a quarter during that period. [Smith Barney research, 2003]
China and Japan are world's largest purchasers of platinum (a quarter of the total) - a position achieved in a remarkably short space of time although, as prices of the metal rise, so the income of jewellery fabricators is becoming squeezed [FT 10/11/03]. China is also the world's biggest consumer of tin and zinc. [FT 31/1/2004-1/2/2004]
The structure of China's metals and mining industry
The biggest investors in the country's mineral exploration and exploitation are still the Chinese themselves.
Currently they produce:
21% of world alumina
24% of its zinc
17% of copper
23% of its stainless steel
[Deutsche Bank research quoted in FT 23/9/2003]
In aggregate, it has become the most intensive consumer of metals on earth. Nonetheless, although commentators increasingly focus on China's "insatiable demand" for minerals and metal products, per capita consumption is still low compared with that in many other countries.
Until the late 1990s "publicly"-owned minerals (and other) enterprises were controlled at the central level. State-owned CITIC remains the most important vehicle for minerals investment [see Box]. However, the role of Beijing has diminished considerably, as mineral holdings get devolved to the provinces, and more and more resources fall into the hands of private businesses (often in joint venture with the authorities).
Although there are more mines and smelters in China than the rest of the world put together, much production - particularly of lead, zinc and copper - derives from operations that are not integrated downstream. Numerous small-scale mines sell their output to dressing plants rather than running their own mills: in some areas a small number of these plants serve a large number of small mines, but elsewhere up to 30 dressing plants will operate in a single mining area
In addition there are numerous scrap metal processing operations, often using imported scrap.
Amid this apparent lack of synchronicity, and partly driven by the mining industry's demand for clarity and "security" in the acquisition and management of concessions, the government has promised to revise the National Mining Laws. Ostensibly these will guarantee private land tenure (misnomered "land rights"), protect the environment, govern land use zoning and planning, improve mining taxation and safety, and streamline regulatory hearings over mining practices. But the cart seems well ahead of the horse: China's Ministry of Land and Resources estimates it will take at least five years before the Chinese People's Congress finally approves the reforms.
Following precedents already imposed on numerous South-based mineral-rich states under the World Bank's "structural adjustment" programmes - but probably much more as a consequence of joining the World Trade Organisation (WTO) - China's rulers are intent on "making foreign investors more comfortable with doing business".
They aim to promote intensive buying and auctioning of mining resources including state-owned mining operations (though national and provincial agencies still fund about 47% of mining exploration). [Mineweb 11/3/2003]
As part of this so-called "grand plan" the state's geological survey in 2003 delineated three premier ore deposits in the country and promised the formation of up to ten major joint mining ventures. According to one government spokesman late last year, Chinese mining is "being transformed from a primarily labour-intensive system. This requires a modern mining law to attract a modern mining industry". [For further information see: www.china-mining.com]
China's domestic resources
Received wisdom, for some years, has been that China is avid for imported minerals while providing little opportunity to exploit its own reserves. Is this true?
In regards at least to coal at least, it seems not. This March, the Chinese prime minister announced the government would develop large coal mines to meet the need for electricity, following a record production of 1,500 million tonnes in 2003. [Mining Journal (MJ) 12/3/2004]
The World Bank's "Potential for Mining Investment in Transition Economy Countries in East and Central Asia" identifies north, central and western China as prospective for a wide range of other minerals - especially gold, iron ore, base metals and diamonds. In fact one of the biggest gold provinces in the world is the Jiaodong Peninsula (NE China), which already delivers 52 tonnes a year of gold and allegedly hosts reserves sixteen times that amount. [MJ 5//3/2004]
Jinchuan province hosts the world's largest known deposit of nickel and also possesses around half the world's known deposits of antimony, tungsten and rare earths. (The Byana Oba deposits alone account for eighty per cent of the world's production of rare earths). [MJ ibid]
Focussing on specific minerals
Within the coming year, China looks likely to overtake the US as the world's single biggest consumer of aluminium. [Mining Magazine, January 2004] The country has more aluminium smelters than the rest of the world put together, but many of these are antique and small (delivering less than 10,000 tonnes a year, while average capacity elsewhere is twenty times this amount).
Chinese aluminium production increased nearly three fold between 1995 and 2002
Both Russia and China can smelt and deliver the finished article cheaper than the main western group of producers. [FT Aluminium supplement 9/11/2003] However (although industry opinions are divided), it seems likely the country will become a net importer of aluminium over the next few years rather than "swamping" the rest of the world with cheap exports of finished products, as some have feared. But this will naturally depend on a continued rise in demand - and access to substantially more alumina than it can refine domestically.
Chalco, China's biggest aluminium producer, aims to double aluminium output - from 760,00 tones a year in 2003 to 1.5 million tonnes in the near future. [FT 2/3/2004] The expansion will centre on southern China, especially Shanxi and Quinghai. While other smelters have recently been forced to close, Chalco has the advantage of owning downstream (processing) facilities that reduce added-on charges.
Alcoa has long been cultivating an alliance with Chalco and, in March 2004, the two companies confirmed a joint venture deal. [Planet Ark 4/11/2003] The US partner's investment is focussed on increasing Chalco's domestic alumina and aluminium output in two phases. If successful this could boost the Chinese company's output by 800,000 tonnes of alumina and a lesser amount of aluminium.
The world's second biggest aluminium producer, Alcan (now Alcan/Pechiney) has had links with China since the 1920s. Today it isn't far behind Alcoa. In October 2003 the Canadian company agreed to invest $150 million in a half share of the 150,000 tonne capacity Qingtonxia smelter, located in the Ningxia autonomous region. The agreement gives Alcan a "substantial operating role" in the smelter. [Reuters 23/10/2003] Alcan also has an integrated extrusion and fabrication joint venture, an aluminium-composite panel facility and four packaging plants in the country. [PR-newswire 4/3/2004]
In late 2003 Chalco announced a share placement of US$200 million. [FT 17/12/2003]
Shortly afterwards, it discussed with Brazil's premier mining conglomerate, CVRD, the possibility of jointly increasing production (from the sixth and seventh potlines) at CVRD's Alunorte smelter in Brazil.
Chalco has also expressed an interest in participating in the second phase of CVRD's Paragominas, the Amazonas-based bauxite project. [Mining Magazine (MM) March 2004]
BHPBilliton and Rio Tinto have recently concentrated on providing China with alumina [FT supplement ibid], rather than setting up aluminium plants or supplying metal. And in March 2004 Chalco announced the intended construction of a new one million tonnes/year alumina refinery [MJ 12/3/2004]
Coal (Coking and Steam)
In 2003 China exported 14.6 million tonnes of coke. Of late, however, the government's policy has been to restrict exports, in order to reduce the cost burden of domestic steel production. [FT 2/3/04]
It is also the world's second largest exporter of coal - primarily to Japan and South Korea
though trade with India has been modestly increasing too. [Coal Magazine, February 2004] The export drive has been attributed largely to domestic oversupply during the 1990s: if and when China's demand rises significantly, this trade could diminish.
The value of coal imported into China, for its steel industry, increased 20% in 2003 - marking the biggest rise in global coking coal prices since the oil crisis of 1974. (Crude steel production. rose by a similar amount). Coking coal prices for British Columbia suppliers to China have risen some 20% during the last year because of Chinese demand.
(The world's largest supplier of hard coking coal is Australia, with over half the global market, followed by Canada. The world's biggest corporate suppliers of coking coal are BHPBilliton, Rio Tinto and Xstrata; and of iron ore CVRD, BHPBilliton and Rio Tinto [FT 25/12/2003])
Coal for power
At end of 2003 China's Huaneng Power (HP) Group (the country's largest independent power producer) signed a memo with BHPBilliton, not just to secure coal supplies from Australia but to re-negotiate lower prices. Certainly this was aimed at reducing the chronic power shortages reported last year in two thirds of China's regions [FT 4/12/2003]. (Nonetheless, the chairman of the group, Li Xiaopeng, was quoted as saying it was "to help us join the ranks of the world's leading 500 corporations"! FT 18/12//2003])
Between 64% [EIA quoted in Coal Magazine, February 2004] and 71% [FT 9/3/2004] of China's electricity is generated from coal. But demand for electrical power - especially from the steel, aluminium and cement sectors - is fast outstripping the capacity of the state to provide it.
The coal is hewn both from thousands of ill-managed mines (taken together, the most dangerous and polluting on the planet) and from state-owned mines which are hardly safer. Supplies from the latter have, however been dwindling [FT 20/2/04], the state rail infrastructure is under unprecedented pressure, due to lack of adequate rolling stock [FT 15/12/2003] and bottlenecks are frequent. [FT 9/3/2004] Three hundred and ninety Chinese cities depend on coal mining but 80% of them are said to be in fast decline. [FT ibid]
More coal now appears to come via the "black market" (aka "free market") than state mines, despite government crackdowns on the "illegal mines". The regime's attempt to close down many of these operations from 1998 onwards has hardly been a runaway success. [Coal Magazine, February 2004] At the end of 1999, no less than 36,700 mines (sic) were still operating according to Lu Jianzhang of the China Coal Research Institute, having already produced about 1.1 billion tons of coal: "In the U.S., you produce a similar amount of coal with 1,750 mines". [FT 18/12/2003] An estimated 23,000 such mines are still operating.
How can the mines be re-generated when the exodus from the countryside is so vast? An estimated 300 million people have moved to urban areas from the late 1970's onwards [FT 16/12/03]. Of these an estimated thirty million are unemployed and 150 million are said to be "roaming" in search of work.
Yet the government apparently intends to "encourage" up to half a billion more villagers to move - partly in order to provide cheap labour for industry. [Wang Mengkui interview in the FT 28/11/2003]
The killing fields
Despite the expansion in imports, China accounts for an astonishing 80% of global seaborne coal trade - mostly to north Asia. It can dig up the black stuff more cheaply than anyone else, and its selling price has been severely undercutting Australia's.
This advantage is due primarily to the ruthless exploitation of Chinese workers in the informal sector (partly exemplified by the banned film "BLIND SHAFT" which opened internationally last year). Taken together these pits represent global mining's most relentless "killing fields". The victims are predominantly from China's impoverished rural areas - especially in the South - constituting a vast, often desperate, procession of migrant mine labour.
Official figures have it that, since 1997, between 5,000 and 6,000 coal miners have died each year, while the central authorities put fatalities from all types of mines at around 10,000. In the first six months of 2002 alone, as coal output was further accelerated, the official death rate rose to almost four thousand (3,393), and by the year-end the toll was 6,995 killed in explosions, roof collapses and floods. (By comparison, 27 American coal miners lost their lives the same year). Government officials have recently insisted that both the mines and factories are getting safer [WorldScan 8/3/2004], and a new occupational safety law did pass in 2002. But, so long as the government bans independent trade unions and open collective bargaining, improvements will be marginal.
Many mines operate only for short periods, using casual, contract labour; when accidents occur, the best the workers can hope for is a derisory cash pay-off. Even when the central government does order the closure of unsafe mines local officials - who have benefited from the mines' tax revenue - often ignore the edicts. "Local government officials also are on the boards of directors of these enterprises. Collusion between the two makes enforcement more difficult" says Chen Meei-Shia of Cheng Kung University Medical School, Taiwan. [US Today 7/7/2003]
Miners usually receive little training before heading below ground, says Han Dong Fang of the Hong Kong-based China Labor Bulletin: "There's no reason for the subcontractor, who'll be there temporarily, to spend money on safety".
Chinese power plants spew out some 19 million tons of sulphur dioxide a year (compared with 11 million in the US); indoor air pollution caused by coal burning takes more than 700,000 lives a year. Nearly one quarter of all early demises are attributed to respiratory disease (though many of these are caused by smoking). In one sample of 340 cities, only a third of people were breathing air matching national air-quality levels (themselves below those set by the World Health Organisation) [National Geographic magazine, quoting data from China's State Environmental Protection Administration; China Environmental Monitoring Central Station].
More than 25 million Chinese workers are now estimated to be in regular contact with toxic dust and poisonous materials. At the current rate of "growth", within three decades China would overtake the US as the world's largest source of greenhouse gases. Carbon dioxide burden per capita is an estimated 2.5 tons [Nat Geographic op cit]. 90% of cities suffer from, water pollution, while 65 million people can't get clean water in the countryside. [China's "green index" FT 9/12/2003]
Doubtless many Chinese understand all too well the horrendous consequences of industrial pollution. Since 1979 there has been a raft of environmental regulations. However it was not until 1998 that spending on environmental protection finally exceeded 1% of GDP. The Japanese government - suffering from downwind acid rain effects - has gifted smokestack scrubbers to power plants in Shanxi province, source of 25% of the nation's coal. [National Geographic op cit]
Suppression of the victims
Gold miners suffering from silicosis at the Dagiao gold mine, Jiangxi province, in 1998 took the county government to court and won some compensation - at an average of US$3000 per person. Three years later none of them had received more than half this amount. In April 2001 the miners decided to blockade a mine approach road, along which the new provincial party secretary would be travelling, to present him with a petition. They were arrested, some detained and others fined.
[National Geographic, March 2004]
According to BHPBilliton the recent jump in demand for iron ore from China is "the greatest in living memory". [Mineweb 10/7/2003] Globally it is also the biggest consumer [FT 31/1/2004-1/2/2004], as imports doubled between 1999 and 2002 [Mineweb 17/2/2004]. The company is confident that the world's most populous state will account for 37% of global demand for seaborne iron ore by 2007 - as much as Europe and Japan combined, representing "a profound change in market structure." [Mineweb 18/3/2004]
BHPBilliton's own iron ore sales to China jumped 50% between 2001 and 2003. The world's biggest mining company has set up what it calls a "WOBE" (Wholly-owned Business Entity), enabling it to control business within China to its own benefit - particularly iron ore sales. [Mineweb10/7/2003]. The country now accounts for 10% of BHPBilliton's revenues, making it second in importance only to Japan). [FT 2/3/2004]
The company in 2004 gained it highest-ever annual price rises for iron ore and coking coal this year, while increased manganese prices are "robust" (first imposed in China) are, now according to BHPBilliton, "being felt the world over". [Mineweb 18/3/2004]
In March this year the Australian-British mining giant signed a US$9 billion contract to supply 12 million metric tonnes of iron ore to four Chinese steel mills over a 25-year period [MJ 5/3/2004]. Not only will this boost output at BHPBilliton's Australian mines to 100 million tones during this year: it will also ensure that the four Chinese companies gain a 40% share in BHPBilliton's Jimblebar mine in Western Australia.
Wherever BHPBilliton ventures, its closest rival, Rio Tinto is usually not far behind.
(In fact Rio pipped BHPBilliton to the post in trading iron to China. [Engineering and Mining Journal, USA June 1989] The world's second largest mining outfit - also second biggest iron ore producer - has just brokered an Aus$7 billion 20-year deal with Baoshan Iron and Steel and has committed a billion dollars to expanding its Hamersely iron ore operations for the purpose. [FT 15/12/2003]
... and Steel
China is believed to have expanded steel production to 219 million tonnes in 2003 (nearly double what it was in 1999), and by a further fifty million tonnes the following years [FT 17/3/2004]. In 2000 alone capacity went up by a third. [FT 1/12/2000] The country's output now comprises a quarter of the world's total [FT 15/12/2003], with nearly thirty million additional tonnes imported [FT 17/3/2004].
Around 60% of this goes into building and infrastructure, with the remainder devoted to heavy industry and vehicle manufacture. [FT ibid] Putting more and more private cars onto the roads seems to have become they key symbol of modernisation [see Box].
Two years ago Lakshmi Mittal (owner of the world's second biggest steel maker, the LNM Group, the biggest being Aredor) predicted China would become the single greatest threat to the future of western steel makers. China had by then become Mittal's biggest single customer.
Last year Baoshan Iron and Steel linked up with Nippon Steel (Japan's premier producer) in order to construct China's largest steel project. [FT 23/7/2003]
The world's number one iron ore miner, CVRD, is also negotiating a joint venture with China's premier steel makers, Boashan Iron and Steel (Baosteel, to construct a US$1.4 billion steel plant in northern Brazil. [FT 9/3/2004]
Cars - not bikes!
China has become the world's second biggest oil consumer (after the US) thanks not only to increasing electrical power demand, but also domestic car ownership and an enormous increase in metal and aggregates-dependent infrastructure [FT 12/3/2004]. In what many would regard as a retrograde move, last year Shangha authorities banned all bicycles on the city's big roads, to make room for an expanding fleet of private cars [Times, London 10/12/2003].
During 2003 China evinced a "staggering" growth of 31% in motorcycle demand, while car manufacturing grew no less than 84% - to 2.1 million vehicles [Mineweb 17/2/2004]
The Ford Motor company - which already has a joint venture deal with Alcoa -has pledged US1$billion to "outsource" its automotive components from China during 2004. [FT 4/12/2004]
The country has well over 10 million cars and, were private ownership to rise to proportions characteristic of the USA, there would be around 600,000,000 million automobiles.
This is more than all the cars chugging around the planet today. [National Geographic Magazine, March 2004]
A gold fever of sorts seems to be motivating investors to buy into junior mining stock companies to go where recently they didn't venture, and China is near the top of their wish-list.
Deregulation of the Chinese gold market, the inception of the Shanghai gold exchange, decline in government financial support to state-owned businesses, the promised review of the country's mining law and its admission to the World Trade Organisation (WTO) are all cited as improving the China "gold mining landscape" for foreign outfits. [Mineweb 30/9/2003]
When Zhongjin Gold was launched last August, it received 824 times as many applications as there were shares. An antipodean company, Michelago, enjoyed "incredible recognition" by brokers during 2003, with the company's share price rising by a "mind-blowing" 1,200 percent over a four-month period. Michelago also has an option to acquire a 51 percent stake in Shandong Tarzan BioGold Co (Tarzan), a partially provincial government-owned group run (and majority-owned) by) power broker, private operator and Tarzan chairman, Mr Zhang Ankang. Mineweb rates Tarzan one of the key state-owned enterprises in the Chinese gold industry". [Mineweb 30/9/2003 ibid]
Fujian Zijn Mining (in which South African Goldfields has a small stake) made a Hong Kong offering in late 2003 which was 744 times oversubscribed. [FT 23/12/2003]
China's first foreign- owned gold producer was Sino Gold, which owes its existence to the government's privatization of the gold division of Sino Minerals in Autumn 2002. Last year it market capitalisation climbed to just over A$400 million, making it Australia's fifth largest local gold stock. [Mineweb 2/3/2004]
However, partly because of concerted opposition within Australia to its Jinkang project in Eastern Tibet, Sino pulled out of the occupied territory in January 2004. [press release Australia-Tibet Council, January 28 2004]
Sino's Jianchaling mine began operating in 1998 but its managers claim their Jinfeng Gold project in Guizhou Province (located in the "Golden Triangle") is the largest undeveloped gold resource in China. Sino also has a joint exploration venture with Gold Fields of Australia in Shandong, alleged to contain about 25% of Chinese gold reserves.
British mining development junior, Griffin in 2002 was awarded a licence to develop the Caijiaying zinc-gold deposit in Hebei province, through its local subsidiary, Hebei Hau-ao Mining Development Co which it claimed was "the first licence awarded to a foreign company for a base metal deposit in the People's Republic". [China Economic Review, May 2002]
Over the following 21 months, Vancouver-based. Southwestern Resources Corp. advanced its exploration of the Boka Gold project in northern Yunnan province. [Press release Southwestern Resources Corp, 21/5/2003] A second Canadian junior, SKN Resources Ltd received government approval to proceed with its Tuobuka project, in the same area. Yet a third, Orsa Venturs received a business licence from the Yunnan Provincial Administration for Industry and Commerce for its joint venture company Yunnan Orsa Mining Co. Ltd., to explore on the company's Boka/Dongchuan project along with Southwestern. [Orsa News Release, 24/2/2004]
Minco has been operating in China since 1996, building "an extensive database of properties and projects". In November 2003 the company entered into several agreements with Gansu provincial government and two other companies in Gansu, to develop the Anba gold deposit in the Yangshan gold field (the Gansu Keyin Mining Co. Ltd. Joint venture) allegedly also one of the largest gold discoveries in China in recent years. [Inside Gold Newsletter, 1/12/2003]
It's difficult to estimate to what degree the recent "boom" in copper prices can be ascribed directly to Chinese appetites. At last one major copper miner, Chile's Antofagasta (registered on the London Stock Exchange and the world's largest privately-owned copper producer, controlled by the Luksic family) attributes its recent high earnings primarily to Chinese demand. [FT 10/3/2004] Imports will certainly rise if expansions of large-scale power generation and housing continue, due to the use of copper in cables, wiring and piping. [FT ibid]
Joint venture copper deals have been signed with foreign companies in the Tibet
Autonomous Region, Pacific Minerals Inc in Yunnan province [Mining Magazine, January 2004], and between Lafayette Mining Ltd in the Philippines, Jiangxi Copper Company Ltd and China Non-Ferrous, to proceed with the Rapu Rapu project which also has significant gold and silver value. [MiningAustralia.com news]
Above all there is the alliance between CITIC and Robert Friedland's Ivanhoe Mining.
China's share of world copper consumption rose from less than 5% in 1990 to more than 15% in 2002: it is (almost inevitably) the world's leading consumer of the metal. [FT 31/1-1/2/2004]
Although output of copper concentrates last year was around half a million tonnes, Chinese imports were four times this amount, deriving mainly from Argentina and Chile. [CBS Market StockWatch 22/9/2003]
Finished copper production reached 2.3 million tonnes, ranking it the second largest (after the US). [Mining Magazine February 2004]
The Citic Gent (aka The Friedland Factor)
"China sees nothing but friends in Africa. I am comfortable that Canadian [miners] will keep coming to Africa and the Chinese will find that" [Friedland quoted on Mineweb 17/2/2004]
China's state-controlled, and US$60 billion-asset, China International Trust & Investment Corp (CITIC) intends to develop equity and financing links with an increased roster of natural resources companies active in gold, copper oil and gas. It already has large stakes in forestry in North America and Aotearoa/New Zealand and an aluminum smelter in Australia. CITIC's holdings encompass vast tracts of natural gas and oil in Dagang, the Sichuan Basin and Inner Mongolia, as well as some 16 gold mines and one copper mine. It holds major share interests in numerous industries across the globe that have strategic value to the expanding Chinese economy, including energy, banking, airlines, information technology, investment services, real estate, engineering services, heavy industries, infrastructure investment and resource industries. [Thom Calandra, CBS MarketWatch.com, Sept. 22, 2003]
CITIC now seems to have chosen as a key partner, Robert Friedland, the notorious mining entrepreneur (often known as "Toxic Bob" and recently re-baptised "the Reverend" by his mining stable mates). The conglomerate has its eyes on Friedland's Ivanhoe mining company, which recently upgraded the extent and grades of Oyu Tolgoi (Turquoise Hill) copper-and gold deposit in southern Mongolia. The Chinese are also said to be keen to extend their relationship with Ivanhoe's wholly-owned subsidiary, Beijing-based natural gas and oil company Sunwing Energy.
In September 2003 CITIC and Friedland announced a strategic alliance in mineral exploration, development and production projects, which could cover anywhere in the world "to help meet China's current and future metals requirements."
The agreement covers several areas of mutual cooperation: CITIC will help raise capital in international financial markets for the development of projects selected with the help of Ivanhoe's "technical expertise". On a project-specific basis, CITIC will facilitate discussions between senior Chinese and Mongolian government officials regarding a proposed 290-kilometre rail line to link the Chinese city of Bayan Obo with Oyu Tolgoi.
The Burma link
Chinese companies are now the most active foreign investors in Burma, moving into areas deserted in recent years by US, Canadian and other extractive companies which have been stung by international criticism of their support for the military regime. As a partner to that regime, Ivanhoe already manages the biggest Burmese mine at Monywa which produces in excess of 30,000 tonnes per year of LME grade prime copper cathode. A recent scoping study by Ausenco Limited called for Monywa's production rate to increase to 129,000 tonnes in stages spread over six years - a level that would establish Monywa as Asia's largest and lowest-cost copper producer using the advanced heap-leach, solvent-extraction and electrowinning (SX/EW) copper recovery process.
[News Releases by CITIC and Ivanhoe 23/4/2003]
In 2003 China accounted for two thirds of global increases in nickel demand. [Mining Magazine (MM) January 2004]
At the outset of 2004, the Jilin Nickel Industrial Group signed a joint venture with Canada's INCO to mine nickel ore in the country [MM January 2004]. In turn Jinchuan and Anaconda have set up another JV to explore for nickel in Australia. [MM ibid]
Conclusion: it's only the beginning
Statistics can bewilder at the best of times, even when research appears objective and well-informed. Although China has many major state-run information-gathering institutions, it is anecdotal evidence and personal testimony, which may give the real sense of how things are - especially with regards to millions of rural dwellers people and workers barely existing on the bread line. Unfortunately, since the country is still far from open to independent investigation, trade unions are circumscribed, and free political expression is often suppressed, the holistic picture continues to elude.
What the figures do strongly indicate is that contradictions between promoting industrial "growth", while failing to check pollution; attempting to forge a massive urban labour force by de-populating the villages; and constructing the world's biggest-ever middle class while denying basic human rights and spending power to the majority of the population, are bound - at least in the short term - to deepen profoundly.
This is not to conclude that China is inevitably doomed to civil conflicts that would make previous ones pale in comparison. There may well be a current "race for resources" and it could disrupt - even sacrifice - the lives of hundreds of thousands of land-based people. Already it is possible to see this happening in some areas - not least Tibet.
The responsibility for such unchecked exploitation lies not only with the Chinese government. As its leaders open the doors to foreign investors (many of which, like Ivanhoe Mining, have their own disreputable histories - or no verifiable reputation at all) so domestic companies are plunging into dubious new foreign mineral ventures, some of which (especially in Burma and to a lesser extent Mongolia) manifestly do not serve the interests of local communities.
Moreover - and equally important for those who place self-chosen "sustainable development" at the heat of any discourse on mining - China's pretended needs are driving an unprecedented global minerals boom. The immediate consequence of this has been a significant boost in market prices for (inter alia) alumina and aluminium, copper, nickel, and iron ore.
Just at the time that "statistics" point to various impending catastrophes due to greenhouse gas emissions, China's ruling elite is propelling coal demand, if not production to new heights. Studies on the damaging biological impacts of nickel, asbestos and copper use are (apparently) ignored. The global social destruction wrought by bauxite and iron ore mining is bound to increase. As cement output rises, so will the toll in air pollution - already probably the highest, per capita, in the world.
Resistance will rise
But it would be wrong to attribute these actual, or impending, disaster solely to the Chinese government, let alone the Chinese people. Growth in the country's social and environmental campaigning may have been slower in China than, for example, in the CIS and Eastern Europe prior to perestroika. However it is far from negligible, while the outspokenness of individual "dissidents" on a variety of issues is evidenced by the degree to which the government continues to harass (in some cases actively persecute) them. Resistance is inevitable and bound to rise.
The challenge for the rest of us is to offer these burgeoning movements whatever solidarity they seek and information they ask for. Only they can define the priorities for domestic and international action. However, we know - in some cases intimately - the record of many resource extraction companies wooing (or being wooed by) China's current government.
Today there can surely be no more important task for global mining's critics (especially Indigenous, women's and labour movements) than to offer our own evidence and experiences to our democratic Chinese counterparts which need them.
Nostromo Research, London
[London Calling is published by Nostromo Research, London. The opinions expressed do not necessarily reflect those of any other individual, organisation or editors of the MAC web site. Reproduction is encouraged with full acknowledgment]