MAC: Mines and Communities

China Update

Published by MAC on 2006-03-08

China Update

8th March 2006

Last month, the General Synod of the Church of England voted to disinvest from the world's biggest supplier of earth-moving equipment to the mining industry.

For three years Caterpillar has been attacked by human rights groups, for supplying its bulldozers to Israel knowing they would be used to demolish Palestinian homes in the occupied terriitories. [see]

Now, the US company - perhaps fearing a loss of Northern sales - is targeting China, intending not only to take over the domestic market but also "bring the Chinese machinery manufacturing industry under its global industry chain".

Officials in Hunan province say they may close down polluting factories, following the huge spill from a zinc smelter in January

And, from Shanxi province, there comes a plan to "limit" dirty and dangerous coal mining over the next five years.

Caterpillar lines up Chinese firms

by James Bowen, Construction Industry News

8th March 2006

CONSTRUCTION equipment giant Caterpillar is set to embark on a major acquisition drive targeting some of the biggest equipment manufacturers in China, according to reports from the country.

The SinoCast financial service reported industry sources had tipped Xiamen Engineering Machinery Co, Guangxi Liugong Machinery Co, Xuanhua Construction Machinery Co and Weichai Power Co as potential targets for Caterpillar.

The US company has long been interested in the Chinese market and chief executive Jim Owens told a business council meeting last month it would buy a controlling stake in a Chinese company next year.

Caterpillar has long had difficulty penetrating the Chinese market, however, and its manufacturing base within the country has been geared towards sales elsewhere in East Asia.

SinoCast quoted an analyst as saying the potential acquisitions were just a small part of Caterpillar's ambitions in China. The analyst said the company intended not only to take control of the Chinese market, but also to bring the Chinese machinery manufacturing industry under its global industry chain.

Caterpillar has also announced it will make an investment of $US10 billion in China to create a company integrating manufacturing, purchase, logistics, marketing and finance divisions.

The state-owned Xiamen Engineering Machinery has more than 40 years experience in manufacturing and is rumoured to be Caterpillar's biggest target.

The company has assets worth 1.9 billion yuan and has enjoyed rapid growth in recent years to have the second largest production capacity in the Chinese equipment market.

SinoCast said it was capable of manufacturing 20,000 loaders, 2000 grabs, 3000 forklift trucks, 2000 small engineering machines and 20,000 sets of bridge boxes each year.

Caterpillar faces stiff competition from Japan's Komatsu and South Korea's Hyundai in the $US12.5 billion Chinese construction equipment market.

It failed in its bid to buy into Xugong Machinery in September last year despite the companies having a longstanding business relationship and a joint venture making diggers and road-building equipment.

China Province May Close Down Industrial Polluters


7th March 2006

The Chinese province of Hunan, home to China's largest zinc smelter, is considering closing heavy industrial plants that pollute, a senior government official said on Monday.

Hunan, where former leader Mao Zedong was born, has rich deposits of lead and zinc. Smelters line the same rivers that provide drinking water for millions in the province.

The southern province has invested in environmental monitoring and began last winter to close small plants processing indium from waste ores in Zhuzhou and Xiangtan. Nevertheless, years of unrestricted dumping of poisonous industrial waste have taken their toll.

"We're trying a scientific approach to development to give all the people a good living environment, clean water and good air," Hunan's Communist Party secretary Zhang Chunxian, told reporters on the sidelines of the annual meeting of parliament.

The provincial authorities are looking at polluting industries and working out what action to take, he added.

"We are investigating, and could close, any company that operates outside the scope of the law," said Zhang, a former transport minister. "Which companies are going to be targetted, I cannot say for sure."

But one delegate said that the closure of the Zhuzhou smelter, China's largest by zinc output last year, had been brought up during a provincial government meeting prior to the national gathering of parliament being held in Beijing this week.

"The Zhuzhou smelter could be closed, and a lot of other industries too. Not closing it is bad for everything down river," Ren Yuqi, a delegate from the city of Xiangtan, also in Hunan, told reporters.

In January, dredging of the Xiang river in Zhuzhou released the metallic element cadmium into the water, prompting the government to demand all plants dumping cadmium to stop production.

Cadmium, a metallic element widely used in batteries, can cause liver and kidney damage and lead to bone diseases. Compounds containing cadmium are also carcinogenic.

The Xiang river also carries away waste-water from paper mills, lead and indium smelters, though many of these have already been closed. Indium is used to make an oxide to coat liquid-crystal displays.


Despite the delegate's comments on the Zhuzhou plant, a smelter official told Reuters there had been no discussion of closure, and that the business had already installed environmentally compliant equipment.

"Hunan Province can't close us, we are too important to the economy," said Wang Jianjun, head of international trade at Hunan Zhuye Torch Metals Co. Ltd., the company's listed arm.

China's burgeoning metals industry is facing increased policing of air and water pollution, which authorities hope will help push the sector toward consolidation and better technology.

River pollution is a sensitive topic in China, after an accident at a chemical plant in the Northeast last year sent a toxic benzene slick along a river that supplied drinking water to millions of Chinese and Russians.

The government is trying to temper the pace of its economic rise with a focus on balanced growth and greater respect for the environment, a key element of development plans laid out by Premier Wen Jiabao before parliament on Sunday.

Environmental officials say they hope performance targets for "Green GDP" - which accounts for the damage caused by industrial development - will help steer local officials away from approving every project that promises to lift the local economy.

But consistent enforcement, and actually using fines to help mitigate the damage caused, are also necessary for China to make environmental progress, they say.

Story by Ben Blanchard and Lucy Hornby


Shanxi puts brakes on expansion of coal mining

Source: China Daily, BEIJING

3rd March 2006

Shanxi, China's largest coal-producing province, plans to put the brakes on the further expansion of coal mining in the next five years. The move is part of tough measures to clean up the sector's record of contributing to environmental damage, the wastage of resources and mine disasters.

Shanxi Governor Yu Youjun made the pledge at a press conference Sunday night on the sidelines of the current legislative session in Beijing. Yu added that the provincial government aims to upgrade the region into a "new energy and resource base."

"We cannot continue the rough way of development any more and must limit coal production strictly with the guidance of the scientific concept of development," Yu said.

As China aims to build a more efficient and environmentally-friendly economy, efficiency in the coal industry is now a growing concern. Official statistics showed it takes 2.45 tons of water on average in China to produce a ton of coal. The coal production rate in many small mines is as low as 25 per cent, and some byproducts, such as the coal-bed methane, is often wasted.

North China's Shanxi Province produced 600 million tons of coal last year, accounting for 26 per cent of China's coal output. Yu said Shanxi can guarantee an annual output of 700 million tons in the next five years, about a quarter of the country's predicted coal demand, by increasing the coal recovery rate the amount of coal that can be extracted from the coal-bed without more mining. It is currently shutting down the mines with an annual output below 90,000 tons and pushing those producing less than 200,000 tons per year to introduce more advanced, environmentally-friendly technologies.

"We will also introduce strategic partners to establish large-scale coal mine groups with highly competitive and advanced technologies," he said.

What's more, the local government will promote merger and acquisitions to reduce the number of mines to 2,500 by 2010 and ensure 80 per cent of the province's coal output comes from mines with an annual capacity above 1 million tons, said Yu.

Shanxi has shut down 4,876 illegal mines since last September and punished about 1,200 people, including more than 60 local officials who turned a blind eye to the illegal operations of the mines they invested in or harboured.

Coal accounted for 66 per cent in China's energy supply last year and is going to remain the top priority in the long-term energy strategy of China, which is wary of the heavy reliance on imported oil. China is now the world's second largest oil importer after the United States.

Yu said it is a priority in Shanxi's 11th Five-Year Plan (2006-10) to develop the more value-added coal chemical industries such as power-generating coke, coke oven gas and alcohol-ether fuel, in addition to fostering equipment manufacturing, the development of new resources and tourism.

About half of the coke supply in the world market is from Shanxi.

The province is not only famous for black coal. It also boasts many brilliant cultural legacies such as the Yungang Grottoes in Datong and well-preserved grand courtyards, formerly the homes of the country's richest bankers in ancient times.

Yu, previously the mayor of Shenzhen in South China's Guangdong Province, will lead a delegation to Hong Kong in early July to promote local business projects to overseas investors.

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