MAC: Mines and Communities

China contradictions

Published by MAC on 2005-01-13

China contradictions

There can no longer be any doubts about China's critical role in determining the direction of global mining investment. Recent major boosts in profits for BHPBilliton and Rio Tinto are, to a significant extent, due to sales in the Peoples Republic. At the same time, outward mining-related investment by China has also markedly increased. According to official statistics, more than half of China's FDI (Foreign Direct Investment) last year went into mining ventures, primarily in Latin America and Asia; an example of the latter being the controversial Ramu nickel project in Papua New Guinea.

Can this boom continue? If so, what will be its social and environmental consequences? Recent statements from the Chinese regime appear conflicting. In trying to "cool" an "overheated" economy, the government claims to be cracking down on dubious resource projects. Yet, it is still boosting others (notably in the notoriously dangerous coal sector).

China's premier is also on record as opposing profligate new mining in Tibet. But others in the leadership are waving foreign juniors into the region ­ primarily from Canada.

Ironically, while the Canadian government has failed to criticise - let alone impede - such encroachment, its Industry minister is now worried about a Chinese "grab" of its own mineral resources. The irony is compounded by the fact that, for several months, Canada has backed a bid by China's Minmetals corporation to take over Noranda, Canada's oldest mining company.

It seems that political contradictions are not confined to one country alone. Nor are criticisms of the consequences of minerals-related investment - whether going into China, or coming out. For, as a recent research paper points out, mining companies have little to defend, wherever they are based and whichever communities they exploit.

Mining a magnet for China's overseas investment

Asia Pulse/XIC

13th January 2005

BEIJING - China's non-financial direct investment abroad totaled US$1.8 billion in January-November, 2004, according to the recent statistics from the Ministry of Commerce. Mining was magnet.

Of this amount, 994 million or 55.12% flowed into foreign mining industry; 348 million or 19.32% went to commercial services industry; 270 million or 14.92% went to manufacturing; and 90 million or 5.01% went to the wholesales and retail sale industry.

In terms of the destination of the capital flow, $889 million or 49.3% went to Latin America; 515 million or 28.57%, to Asia; and 296 million or 16.4%, to Europe.

The total amount of business turnover from foreign contracting in the first eleven months of 2004 reached US$14.48 billion, up 28.8 % year-on-year, and the number of newly inked contracts was valued at $20.75 billion, a 43.5% year-on-year increase, bringing the cumulative total of the two items to $111.038 billion and $153.199 billion, respectively, by the end of November.

Meanwhile, the turnover from China's labor service in foreign countries reached $3.15 billion, 9.8% more than in the same period of 2003, and the newly signed contracts reached $2.95 billion, up 12% year on year, adding the cumulative total up to $30.22 billion and $35.56 billion respectively, by the end of November.

Half of China's overseas investment falls in Latin America

By People's Daily Online

January 07, 2005

China has made fresh progress in implementing its "go out" strategy, according to latest news from the Ministry of Commerce. Overseas processing trade has grown faster with Latin America becoming the largest destination of China's overseas investment. From January to November last year, China invested 889 million US dollars in Latin America, or 49.3 percent of the total amount. During the same period China's overseas investment in Asia was 515 million dollars, or 28.6 percent; and 296 million dollars in Europe, or 16.4 percent.

Statistics from the Ministry showed that from January to November 2004 China registered 1.8 billion dollars non-financial direct investment on foreign land, including 1.69 billion dollars currency investment (93.8 percent) and 78 million physical investment (4.3 percent).

Viewing from trades, China's investment mainly flew to mining (994 million dollars, 55.1 percent), business service (348 million dollars, 19.3 percent), manufacturing (270 million dollars, 14.9 percent) and wholesaling and retailing (90 million dollars, around 5 percent).

Moreover, China saw surging international project contracting last year, which completed a turnover totaling 14.48 billion dollars during the eleven months, a growth of 28.8 percent; and new contractual value of 20.75 billion dollars was achieved, a growth of 43.5 percent.

Ramu Project Nudged

PNG Post-Courier

January 26th, 2005

The joint venture partners of the Ramu nickel project have reached an agreement to advance the project to construction phase.

They met in the People's Republic of China to agree on outstanding issues related to the joint venture agreement.

The agreement to finalise all documentation is expected to be signed next month in Port Moresby.

Papua New Guinea's Ambassador to China Max Rai said the partners, after they failed to reach agreements in Sydney, Australia and in previous meetings, heaped praise on the outcome and described it as a "significant step in paving the way for the project to begin its first phase of construction".

Mr. Rai said the main issues of difference related to the questions of "exclusive rights period" and the "pledge of PNG parties 15 per cent as security to the China Metallurgical and Construction Company bank loans. The PNG parties include Highlands Pacific Limited and Mineral Resources Development Company (MRDC).

The joint venture partners agreed in their Beijing meeting that:

* The Metallurgical Company will meet 85 per cent of normal joint venture maintenance costs;

* It will be responsible for 100 per cent of costs incurred in its further investigation of the project; and

* The parties will provide without any charge reasonable assistance to MCC during that period.

Mr. Rai said after protracted discussions, it was agreed that the PNG parties need not pledge their 15 per cent stake in the project as security under the financing documentation.

"The parties only took note of the Government's request to reduce the exclusive right period from 270 days to 180 days," Mr. Rai said.

China's Go West Campaign and Globalisation: Tibet's mines up for sale in the international market

Tibet Net

20 January 2005

Dharamshala : China's Go West campaign, officially announced as another massive campaign to reduce the widening income gap between China's rich eastern coastal provinces and western hinterland, is taking its toll on the natural resource base of China's Western region. China's Ministry of Land and Resources has prioritised the shifting of mineral industry to western region and is increasingly trying to woo foreign investment in the exploitation of mineral resources in the western region. A special investigative report of the Mineral Resources law presented on October 26 2002 identified seven major problems confronting China's mining industry and has recommended the restructuring of the mining industry to improve efficiency, garner foreign investment and environmental safety measures. A review of the Mineral Resources Law has been initiated in 2003 and the review will take effect likely in two to three years. In 2003 alone China reported the selling of 11,717 prospecting and mining rights through bids, auctions and other public means.

In recent developments related to Tibet's mineral resources, foreign-based junior mining companies mainly from Canada and Australia have announced their intention and plans to explore and eventually mine gold and copper in Tibet. Two Canadian based companies have entered into an "option agreement", which according to our knowledge might not be recognised by the Chinese law.

It nevertheless highlights the keenness on part of minor mining companies to get a foothold in China in anticipation of opening of the China's mining industry. It appears that these companies have not paid attention at all to the risks involved in working in Tibetan areas. The mining sites falls within the so-called autonomous areas, inhabited mainly by Tibetan minorities, and are characterised by ecologically fragile and mountain environment. Some of the mining sites will occur at places as high as 4,000m above sea level, plan to use the longest running river in Tibet, Tsangpo (Brahmaputra) which support the bread basket of Central Tibet, and one of the holiest lake of Tibet, the Yamdrok Yumtso, where a hydro power station has been built with total disregard to the local Tibetan sentiments and the environmental implications of such project. A gold mine project is being proposed in the Tibetan nomadic area of Chumarleb in Yushu Prefecture, which falls within the environmentally sensitive area around the headwaters of Machu (Yellow River).

The following three projects, that involve foreign investment and participation in Tibet's mines, are of particular concern to the Central Tibetan Administration. We would like to urge the above concerned companies to reconsider their involvement in these projects on moral and environmental grounds as World Bank, BP Amoco and SinoGold did after a careful study of the current reality inside Tibet.

** Nagartse (Ch: Nagarze) Gold mine, a joint venture between Orchid Capital Limited based in Australia (70%) and the China Tibet Institute of Geological Survey (30%).

** Shethongmon (Xietongmen) Gold and copper mine, "option agreement" between China Net TV Holdings Inc. and Continental Minerals Corporation, both based in Vancouver, Canada.

** Dachang Gold Mine, (located in Chumarleb county in Yushu Tibetan Autonomous Prefecture) a joint venture between Inter-Citic based in Canada (87%) and Qinghai Geological Survey Institute (17%).

The Central Tibetan Administration is deeply concerned that the increased mineral extraction activities would have large adverse social and environmental impacts in the Tibetan Plateau and further beyond. Apart from being the source of major rivers of China and rest of Asia, the Tibetan Plateau is regarded by many as having direct and indirect impacts on the local and global climatic changes. The fact that most of these mining [projects] would happen in an environment which is not only vulnerable and fragile, but plan to use Tibet's rivers and lakes which have both ecological and cultural importance, is worrisome and threatening.

China today admits deep concerns about the environmental degradation that has occurred due to past rampant and unchecked economic growth. The Tibetan Plateau is one region today which relative to rest of mainland China is in a better state. China faces a tough choice between economic growth and environmental protection. However, in the case of the Tibetan Plateau, it is sad to see that the concerned authorities have failed to see the environmental costs from mining and its aftermath in a vulnerable and fragile ecosystem for short-term economic gain. It would be wise to listen to what a former director of Environmental Protection Bureau in Tibet Autonomous Region had to say on Tibet's environment:

"In Tibet we can't do what other provinces did, of first destroying the environment and then fixing it; Tibet's environment is more fragile-we have to protect it from the start because it might not recover otherwise."

(The Central Tibetan Administration is keenly following the changing mining environment in China, and the impacts of China's Go West Campaign on Tibet's land and culture. A more detailed report on current mining exploration activities will appear in the next issue of Tibetan Bulletin of Central Tibetan Administration)

Canada Worried by China Buying its Resources

Story by David Ljunggren, Reuters News Service

January 27, 2005

FREDERICTON, New Brunswick - Canada is concerned by the prospect of China buying up its natural resources firms and is reviewing tougher investment safeguards, Industry Minister David Emerson said on Wednesday.

Critics say that Ottawa should take steps to ensure that control over a large chunk of Canada's natural resources does not pass over to a China hungry for foreign commodities.

"I have heard general concerns expressed -- and I think I share some of those concerns -- that when you have state- owned enterprises such as enterprises owned or controlled by the government of China, that they may not be entirely market motivated," Emerson told reporters.

"That gives rise to issues that would be of some potential concern to us. That's not to say that we would not welcome Chinese investment in Canada or Canadian resource industries. It's simply to recognize that we would need some undertakings," he added.

China Minmetals Corp., the state-controlled metals trading giant, is in talks with Toronto-based Noranda Inc. about a possible takeover of the base metals producer.

Sinopec and PetroChina are keen for a deal with pipeline operator Enbridge Inc., which is seeking Chinese buyers for crude oil to be shipped via a planned line to the Pacific coast.

"When you expose yourself to potentially substantial parts of a given sector being taken over by a foreign government, then you have to start asking questions about at what point does that kind of dominant control of a particular sector become a matter of national interest," Emerson said.

Last week in Beijing, Prime Minister Paul Martin signed agreements aimed at boosting co-operation between the countries in oil and mineral exploration.

But Martin is under pressure from the left-leaning New Democrats -- the party keeping his minority government afloat -- to ensure Canadian sovereignty is not harmed. Emerson said he was looking at how to strengthen the Investment Canada Act to protect Canadian interests when foreign entities bought domestic firms.

"We would probably want to ensure that these companies were open and transparent and, ideally, continue to be publicly traded," said Emerson, adding that if the act were changed it would be within the next year.

"We have to ensure that -- particularly in the case of non- renewable resources -- we're not just willy nilly unloading our natural resources without ensuring full benefits to Canada as a result."

Ottawa was also reviewing whether to amend the act to give Parliament more control over the merger process. The government currently has to approve any merger worth more than around C$250 million ($200 million).

"There is some question in my mind as to whether we might not want to have the option of review on smaller transactions that may be of a very strategic nature," said Emerson. (US$1=$1.23 Canadian)

Minmetals meets Noranda

Roger Moody, Nostromo Research: Sponsored by MiningWatch Canada

November 26 2004

In preparing this paper, I owe a debt of gratitude to Dr Stephen Frost of Hong Kong University for providing me with his observations on the operations of Chinese SOEs (State Owned Enterprises). Dr Frost is probably in as good a position as any other authority, both to assess Minmetals's record on the mainland (what is known, which is precious little); and the company's likely modus operandi should it take over Noranda in the near future. I append the comments he made to me earlier this week, and also quote from a relevant paper delivered by himself and a colleague last September at Xiamen University.

Neither Dr Frost nor myself (when I performed a much wider document and internet search) have been able to conclude much about Minmetal's recent record in the fields of human rights (including workers' health, safety, wages and benefits); environmental standards; economic performance and reliability. In any case (as Dr Frost is not the only authority to point out) official data from the Chinese government is customarily restricted, sometimes partial and figures are often inaccurate.

Virtually no independent studies have been carried out on China's mining and trading conglomerates. (The sparse investigations of worker's conditions in the minerals sector, so far carried out, centre on some of the many thousands of the country's independent - and often illegal - coal mines. I refer especially to the informative research of Professor Tim Wright at the School of East Asian Studies, University of Sheffield, UK. Although Minmetals uses and markets coke and coal, I have found no direct link between the company and the results of this research). Even China Labour Bulletin, based in Hong Kong - which places a high priority on gathering mining-related data (its director participated in the mining sessions at this year's World Social Forum in India) - relies on newspaper reports and government statements, not primary research.

But this is not to say these reports are necessarily inaccurate - rather they are intermittent and usually uninformative. The reports are occasionally confirmed by the few foreign reporters who have addressed issues in the Chinese minerals sector. However, none of the latter seem to have experience in covering mining and downstream metals processing elsewhere, in order to compare them with what they discovered in China.

Extractive sector reportage has risen above this rudimentary level in regard to Tibet (the Tibet Autonomous Region and Yushu Tibet Autonomous Prefecture). In 2002, UK-based Tibet Information Network (TIN) published a valuable book-length report "Mining in Tibet", quoting both official sources of information and testimony from local people and workers. With the few exceptions mentioned below, Minmetals has no major presence in Tibet. Nonetheless the Chinese government has consistently targeted TAR's copper reserves for exploration and future exploitation. While no joint venture in the TAR between a Chinese and foreign-based company, has yet been formed - and Wen Jibao has cautioned against a rapid resource expansion into the Western Area (see below) - the new government is not likely to break with its predecessors' aggressive policies towards Tibetan colonisation.

The possibility that Noranda, or another world class copper producer, may be drawn into Tibet must therefore not be discounted.

Ironically (and apart from any due diligence Noranda might have performed on Minmetals' operations) a key source of the information we seek might derive from those other overseas mining companies with which Minmetals has formed joint partnerships It might seem fruitless to try to gain information on the advantages and disadvantages ascribed by these other companies to their relationship with Minmetals. Nonetheless, I don't think we should wholly discount the possibility. There have been no major criticisms, that I can discover, of Minmetals' record on social, workplace and environmental responsibility, coming from these partners - whether trade unions or management. Only this week, a Minmetals subsidiary, Jinchuan, entered into what appear to be very amicable putative M&A talks with one of Australia's oldest and largest mining companies, WMC.

(NOTE: Perhaps surprisingly - but then we're talking about the mining industry, where a cat with claws can certainly look at a Queen - both Inco and Falconbridge may now also be planning to spar with Jinchuan over the spoils of WMC [Mineweb November 15 2004] It looks as if WMC could end up in the arms of Jinchuan, for not only does the Australiani company have copper and nickel to offer China, but also uranium. Exports of the latter have to be approved by the Australian government and the Howard government is currently in bilateral talks with the Peoples' Republic on forging nuclear safeguard agreements[Financial Times November 22 2004] Part of WMC's strategy may be to bulwark it against hostile takeover bids - the "white knight"ploy.. But, like Noranda, WMC also seems to have confidence that Chinese investment can grow the business as well as save aspects of it from disposal. The Australian public seems far less vociferous, either in support or opposition, to such a deal than are Canadians. Possibly one reason is that they have survived major inter-corporate mining deals - RTZ/CRA and BHP and Billiton - without the drainage of equity control or resources some critics had previously predicted. Meanwhile it's not just Australian corporations which are looking to China for new mining investment. At the end of August the Philippine government called China a potential "lifesaver", for an industry which had suffered several years of dwindling investment (nothing was said of the growing resistance by local communities to many projects and the new, much criticised, Philippines Mining Act) [Xinhuanet 23/8/2004.]

Of course there are crucial differences between joint venturing, out-sourcing, toll contracting and commodity supply deals. and a full takeover or management buy-out. Minmetals has had other foreign suitors and doubtless so does (or will) Noranda. To date no discussions on an inter-corporate deal with China's 22nd biggest SOE appear to have got further than the "exclusive" ones with the Old Canadian which recently expired.

Nonetheless, we should remember that, within Canada itself, there is previous bitter experience of a wretchedly abortive takeover "deal" by Minmetals of a domestic company. (True, this was a decade ago but I'm sure the Chinese also cherish a pithy obiter dicta along the lines that "once bitten one should be twice shy"). Eight years ago Minmetals ended up owing money to a Canadian provincial government, and leaving workers in the lurch. The buy-out of Nova Scotia's Sydney Steel company (Sysco) was miniscule compared with the deal that has been exercising Canadian citizens of late; but nonetheless important for its lessons. The deal collapsed and it took two and a half years before the plant was revived under a new board (which included, for the first time a USWA representative) [Cape Breton Post May 5 1999]. The 1996 Nova Scotia parliamentary debate is reproduced in Appendix Two.

What is Minmentals?

Minmetals is a conglomerate. If there is a an Asian natural resource counterpart it lies in South Korea or with the Japanese soga shashu (the likes of Mitsui, Marubeni, Mitsubishi): the major difference being that these are privately owned. From the North, and in terms of operational norms, if not corporate "values", perhaps the most apt comparison is with Swiss-based Glencore, the world's most profitable private metals trading company (and in some respects even more secretive than Minmetals). Indeed, one wonders why these two companies don't yet appear to have been "walking the partnership talk" (Except that Glencore's biggest subsidiary is Xstrata which, as I write, is not only mounting a hostile bid for WMC but also - if the takeover fails, as seems likely - could then go after Noranda).

Number 22 among China's Top 100 enterprises (44 of which are accorded special status), Minmetals has annual revenues which rose to more than US$11 billion in 2003. It. operates 168 solely, or jointly, funded ventures within China and fifty overseas companies in Hong Kong, Japan, US, Australia, UK, Germany, Russia, Singapore and South Africa . As well as being involved in steel products, ferrous and non ferrous metals, coal, coke, building materials, chemical, electrical and electronic products, it has interests in finance and investment, transport, real estate and bonds [Top 100 Chinese Enterprises, 2004]

Following China's accession to the WTO in 2001, Minmetals also launched a major life assurance alliance with the Australian insurer, AXA (AXA-Minmetals) [AXA press release October 12 2001]

Whether Minmetals, along with its stablemates, will remain a State Owned Enterprise (SOE) for much longer is the subject of some discussion within China, the government of which began offering shares in some of its minerals companies to foreign ownership back in the 1990s. [See, for example, Gordon Redding, Financial Times, London August 26 2003]. With fears growing of an overheated economy, the perceived excess of overall foreign direct investment (it reached nearly US$54 billion in the first ten months of this year, surpassing that of 2003 as a whole [FT 16/11/2005], and specific commitment by the new government to cut back on what it regards as dangerously superfluous commodity output (iron, aluminium and cement in particular), the near-future trend will be to strengthen, not privatise all or parts of, those SOEs that are economically successful. Minmetals clearly does serve the economic interests of the state. Breaking up or selling off, smaller SOEs has been advocated by some Chinese leaders in recent years [New York Times, October 10, 2002] but not dismantling bigger ones (the "forty four"). Whether the SOEs are directly used by the leadership to enforce political and social control is a far more complex and difficult question to answer: these issues are the subject of considerable ongoing discussion within the regime [see Dr Stephen Frost and Ms Mary Ho "Mainland Investment on the Move: State-owned Enterprises and Outward Direct Investment in Southeast Asia", paper delivered at the International Symposium on "China and Southeast Asia: Challenges,. opportunities and the reconstruction of Southeast Asian Chinese ethnic capitalism", Xiamen University September 2004]. However this much seems self-evident: neither the Chinese state nor the SOEs are crude hegemonies (even under Maoism they weren't). At the very least, there seems to be increasing influence by the provincial authorities in determining natural resource inputs, production and the location and regulation of mines and mineral-related enterprises.

In situations where state policy is manifestly unacceptable (as in Burma) or the nexus between an illegal regime and natural resource exploitation is clearly leading to human rights atrocities and appropriation of wealth (as in Sudan with oil, and several west and central Africa states in respect of diamonds or in the Congo and Equatorial Guinea), we should surely to take a strong moral line against any type of economic association between company and state. Some would do so for China, too. But, so long as there is no widely accepted or implemented embargo on trade with the world's most populous nation, it surely becomes difficult to distinguish the functioning of SEOs within the Chinese economic system from those of many other state companies, operating where human rights abuses are widespread.

Tibet Sino Mining International Ltd (SM) is wholly-owned by Minmetals (CM Nonferrous: 51%; CMC: 49%). It was established in October 1995 with a share capital of USD115 million to "effectively utilize the international capital and resources markets to invest and develop nonferrous metals resources needed as a result of China continuously expanding smelting capacity. SM has established itself abroad to serve the non-ferrous industry in China by actively utilizing and developing resources in both the international and domestic markets."

SM has four subsidiaries: Sinomining Alumina Ltd.( SMAL), Sinomining Australia Pty ., Sinomining Ltd. and Sinomining Trading Pty Ltd. In April 1997, SMAL successfully concluded a 30-year supply agreement with ALCOA for 400,000MT of alumina per year.. SM spun off its gold interests in 2002 into Australian-based Sino Gold, in which both Minmetals and SM hold minority stakes. US financial services firm, Reco, owns the lion's share of 38% [IFC summary of project information, Sino Mining, May 22 2002].

That year Sino Gold opened a mine in Shaanzi province. Although backed by the IFC there were two anomalies to the investment. First the mine was in Tibet and second, it was classified as a Category B project under the IFC's Procedures for Environmental and Social Review of projects. This, despite it being a gold mine (virtually all mining projects invested in by the World Bank/IFC are rated Category A, which mandates an on the spot scrutiny [IFC Summary of Project Information, May 2000, ibid])/

The recently-published Chinese White paper on mining (see below) expressly lays out that the prime target for foreign minerals joint ventures will be western China (effectively Tibet and the other "disputed" territory of Xinjiang Uyghur)

It is not known what (if any operations) Minmetals per se has in the Tibet Autonomous Region and TAP and, to date, foreign penetration there can be counted on the fingers of one hand. But the TAR does have abundant, untapped copper deposits (mostly porphyry) and one foreign JV was announced late last year between a Chinese and overseas company - both unnamed [Mining Magazine January 2004].

During the mid-nineties a number of foreign companies , including BHP and Cyprus Amax,.were conducted by Chinese officials around the TAR. Only Cyprus Amax seemed interested in a deal, but it later withdrew (because of unresolved legal problems, not on moral grounds) [Mining Tibet, TIN, London, 2002 page 69[ Inter-Citic is (so far as I can determine), separately managed from Citic which is one of the four partners in the bid for Noranda, but it is also linked with Minmetals. In 2001, during a Team Canada trade mission to China, Canadian Prime Minister Jean Chrétien announced a partnership between Inter-Citic, the China Non-Ferrous Industrial Trading Group (formerly Minmetals International) and UK-based Henderson China Holdings of Hong Kong. The partnership created China Metals Net, the largest e-commerce metals trading marketplace ever to be launched in China.

Inter-Citic Mineral Technologies Inc., based in Canada, calls itself an " exploration and development company operating in the Tibetan and Mongolian regions of China". This autumn Inter-Citic announced commencement of exploration on its 275 square km. Dachang gold mine project in Chumarleb (Dachang) county in the TAR, which has so far been inactive, primarily due to a lack of investment . According to a press company release, Inter-Citic has so far committed CDN$3 million to the project. Inter-Citic says it will acquire a 90% interest in Dachang, once its total investment commitment of CDN$5.4 has been paid. Exploration at Dachang will require the construction of a 30-man camp to house Canadian geologists and drilling experts as part of the exploration team.

Inter-Citic has pledged to work towards the betterment of the local community, stating on its website that "[a]s we gain a further appreciation of the circumstances of the local people through ongoing dialogue and engagement we become better able to target locally the social benefit of our work". Such claims will do little to address the environmental impact of mining scheduled to take place within the 152,300 square km. nature reserve park established by the Chinese State Council in February 2003, to conserve wetlands and wild life habitat and encourage environmental protection. [Tibet Environment and Development News, October 5, 2004]

The Gulag claims

A key allegation levelled against Minmetals has been that it benefited - and continues to benefit - from the laogai or laojiai, ( forced labour camps) in production of its goods Although a member of the International Labour Organisation (ILO) China has ratified neither the Forced Labour Convention (1930) nor the Abolition of Forced Labour Convention (1957). Laogai and laojiai are generally considered to exploit mainly political prisoners. The system certainly continues today, in particular with the persecution of the Falun Gong religious sect, many of which have been sent to laogai and also put to work in mines..

There is no doubt that Minmetals did use these appalling "facilities" during the nineties. Dr Harry Wu claims that the camps benefio Minmetals: today it may not directly exploit prisoners but the camps continue to deliver products traded by the SOE. [Harry Wu quoted in National Post, October 5 2004; Globe and Mail op ed, October 29 2004]] In a related statement, Canadian Liberal MP David Kilgour has claimed that the "purchase price [for the Noranda deal] will come from China's ballooning foreign exchange reserves -- now more than US$470-billion -- which have been created in large measure by exploiting its labour force through artificially low wages.". Both these accusations are weak, or at least do not appear to be substantiated; a view echoed by Dr Frost. Although "mining is a common laogai activity," according to Jeffrey Fielder of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), "being able to prove [its connection with Minmeals] would require a considerable [amount] of dangerous work inside China." A US. State Department report, issued in 2003, also cited "serious" concerns about forced labour, but acknowledged that the Chinese government wasn't co-operating with U.S. officials to determine if goods exported to the United States came from the camps, therefore proof was not to hand.

Allegations of major abuses through the laogai system, denial of basic workplace self-organisation, and other breaches of labour and human rights, continue to surface (viz recent articles in the New York Times ). Some of the examples given pre-date the present leadership, but there is little doubt that breaches of international norms and China's own laws continue. Is Minmetals complicit in any of these? We cannot say. Does Minmetals trade in goods made by workers under unacceptable conditions? Almost certainly, given the huge number of plants and factories from which it draws its products. Nor should we forget that the play for Noranda is being made by a consortium of companies. We know virtually nothing about the socio-environmental track records, or labour practices, of these four companies - Boashan Iron Steel (Baosteel), Citic Investment Corp, Jiangxi Copper and Taiyuan Iron and Steel company - although Citic does seem connected with Inter-Citic, the Minmetals subsidiary which (as just stated) itself has a subsidiary operating in Canada and is active in Tibet.

So, should Minmetals be condemned for complicity in criminal acts against its workers which are currently only conjectural? Or should it be given the benefit of the doubt, until more "evidence" than that provided by Harry Wu, David Kilgour, the US state department and others is forthcoming?

This author cannot say. I defer to the judgment of Stephen Frost that Minmetal's labour relations are probably better than those of most other SOEs. Ironically, says Dr Frost, some Chinese are worried about increased ODI, not because it will introduce unsafe or demeaning practices outside the mainland, but because it may lead in the other direction - with dubious practices entering Chinese workplaces that enjoy good labour relations. He cites concerns that Kodak and Samsung have disallowed trade unions in some of their factories, and refers to the poor CSR record of other US and European multinationals. Indeed, which Canadian or Australian natural resource companies operating, or seeking to operate in China, can attest to an unsullied record elsewhere? Certainly not Ivanhoe Mining - which has profited from Burmese forced labour in recent years. And what of Noranda or Brascan?

What should certainly worry us is the possibility that, were Minmetals to be "downsized" at any stage in future , employees could suffer the fate of others dumped by SOEs - being furloughed ("xiagang"), which means having to survive on starvation stipends and no other benefits. China has no meaningful, let alone nationwide, pensions system. This is all the more regrettable given that, dogged by the "one-child system" (only abandoned recently), family support networks for many millions of people threaten to reach crisis point within ten or twenty years.

We should also be concerned that - even if we turn a blind eye to the widespread denial of human and labour rights to Chinese citizens in general - foreign employees who fall foul of existing health and safety laws, far from being exculpated, may suffer penalties of a harshness unexampled elsewhere. Staff at one mine, found guilty in 2002 of causing an accident resulting in the deaths of 81 workers, were sentenced to up to 13 years in jail. In another recently reported case, a local official implicated in a similar disaster was sentenced to death [China Labour Bulletin quoting sources in China, March 13 2002; International Herald Tribune, July 3 2002]

[Foot note on safety: In October 2003, Minmetals was ordered by the Australian government to ban the sale of dangerous dart guns with parts which could be swallowed by small children - sold from its warehouse in Australia [Australian Competition and Consumer Commission statement October 23 2003].

Raw deals

The allegation that Minmetals is interested in Noranda only to "steal" Canada's precious in-ground zinc and copper has, at times, seemed tainted with hypocrisy, if not indiscriminate "China Bashing". Although this paper does not go into major detail on Noranda and Brascan's own practices at home and abroad, some Chinese observers are aware of the companies' past history (eg, Brascan's widely condemned operations at the Jacunda tin mine in Brazil's Jamari National Forest during the eighties and nineties [see R Moody "The Gulliver File", 1992,, page 168]) and Noranda's recent intention to locate a smelter in Patagonia [see Statement at Noranda's AGM April 26 2004] . Heretical as it might sound, one could also ask why China - in pursuit of a manifest project to raise living standards for its 1.4 million people; having signed the Kyoto treaty (more than the Bush regime has done); drawn up a five-year , Euro43 million energy and environment plan with the European Union in November ( to which the Chinese state will contribute half) [Environmental News Service, Reuters, November 3 2004] , and expressed readiness to enter into other international Covenants - shouldn't purchase Canada's raw materials at market prices, just like those who benefit from the export of Canada's uranium or asbestos (Not that China is likely to require much of that, since it has one of the world's largest deposits).

This is not to say that Minmetals doesn't require raw metallic materials: it's avid for them. Various companies, including Minmetals and Jinchuan, have made no secret of that fact. For example, Ziu Guang, the Senior Vice President of Minmetals, in his special presentation at the NRCan Forum in March 2004, expressed pride that Chinese aluminium production was "growing at a phenomenal rate" and, while the country had become a net exporter of the finished product, "to obtain sufficient outside [primarily alumina] resources is the key" . [Zhu Guang, Senior Vice President, Chinese Minmetals Group, "CMN, A Reliable Partner in a Sustainable Market", Special presentation to the NRCan Forum, Canada March 2004]

The key question is whether, having gained access to primary reserves, Chinese companies will seek to export the mined ore, thus jeopardising Canadian downstream jobs, and appropriating added-value to their home country. (A secondary, related question, not dealt with in this paper because it is highly speculative, is whether any jobs lost in Canada would be offered in China at comparable rates and with guaranteed benefit packages: this hardly seems likely. Although the state announced last year that it would introduce a comprehensive mining code, covering such issues, it will be at least another four years before one is in place, let alone comprehensively implemented).

We do know that raw minerals - primarily iron ore - have of late been piling up at Chinese ports. Last year China imported US$103 billion dollars worth of mineral products in various forms [Xinhuanet, November 18 2004].and at various stages of their production cycle. We also know (because BHPBilliton and Rio Tinto have told us) that the Chinese were, late last year, desperate for alumina (rather than bauxite) to feed their larger smelters, albeit while closing down some of the numerous smaller and economically marginal ones. Minmetal's subsidiary, Sino Mining Alumina Ltd (SMAL) as far back as 1996 concluded a 30-year alumina supply agreement with Alcoa. Sino Mining also imports copper concentrate (see below). And we know that China's massive demand for nickel (sucking up around 20% of global supply last year ) includes the metal in its raw state (hence a deal Minmetals concluded with Cubaniquel in 1998) [Volume 30, number 4, March 15 2003]. But we have also been assured (eg by Robin Bahr of London's Standard Bank) that, because the metal was "overbought" in 2003, some de-stocking has taken place within China and substitutes, such as lower grade nickel and "even manganese", have been used by some Chinese stainless steel manufacturers [Standard Bank Daily Report, September 17, London].

Home sourcing?

There is therefore some substance to the fear that Minmetals might use Noranda's ore reserves as a "milk cow" to service its domestic downstream facilities, unless it is explicitly prevented from doing so. Last July, the company published its resources strategy, providing a large amount of data on its requirements, imports and domestic sourcing [see Zhu Guang, Senior Vice President, Chinese Minmetals Group, "CMN, A Reliable Partner in a Sustainable Market", Special presentation to the NRCan Forum, Canada March 2004, op cit] (I suggest it is also important to determine what might be the import and consumption patterns of Minmetals' partners in the prospective Noranda deal). . However, last week, at a Metals Bulletin international conference held in Beijing, the country's vice-minister of Land and Resources, presented a state White Paper on mining which appeared to downplay - though certainly not discard - a major near-future dependence on indiscriminate overseas raw materials acquisition. While pointing out that 80% of the country's industrial raw materials comes from within the country, the White Paper urged that domestic mineral exploitation be stepped up. [White Paper on China's Policy on Mineral Resources, summarised on Xinhuanet, Op cit]. The government would now apply itself to opening up fresh homeland areas to foreign expertise (Allegedly only one tenth of the identified mineral resources have yet been fully explored)

At the conference, China's vice premier, Zeng Peiyan sought to allay anxieties within China that foreign investors were benefiting from tax and other breaks at the cost of home grown companies. [Financial Times, November 16 /2004] Somewhat quixotically, Zeng claimed that tax holidays were, in fact, already policy, and would be applied cross the board to both home and overseas outfits "in line with the World Trade Organisation" [Xinhuanet op cit. (NB: This author is aware of - but perplexed by - CAW's statement of November 3 2003 that "China imposes powerful restrictions on foreign investors and multinational corporations eager to enter the Chinese market" for which there seems little - or at best conflicting - evidence. Although only one mining company has so far obtained a full licence to prospect on its own in China, doubtless more will follow. Ironically the lead-setter is TVI Pacific, one of the most criticised of all junior Canadian mining enterprises. Make of that what one will.)

We may feel that - even if "white" - the new "policy" is far from transparent - and, to a considerable extent, is being constructed "on the hoof". From what we know of the way decisions are made in the People's Republic, China does not seem much different from other, more democratic regimes, that float new policies to see whether they work, then retract certain aspects, or change the rules, if they don't.

The White Paper certainly does not herald a cooling off towards foreign acquisitions, pace Noranda. Nonetheless we should bear in mind that the original Minmetals/Noranda deal was not constructed as a "lock-stock and two smoking barrels" type of takeover. It included spinning off the Canadian, Jamaican and US aluminium interests to existing shareholders, and leaving Falconbridge in the public sector [Noranda company statement, September 24 2004] It doesn't seem that the Minmetals bid for Noranda is of that "stalking horse" variety, characteristic of some past corporate resource takeovers (such as Rio Tinto/Thomas Ward, Hanson/Newmont, where the plan was to gain control of operations embedded within the target company, and asset strip the remainder).

Even if not modified, the White Paper will take some years to fully implement. Since Chinese demand for nickel and copper not only currently outstrip supplies, but also China's capacity to identify and exploit deposits within the country, it is surely not fanciful to suggest that Noranda, along with other foreign companies, might be invited to enter China - as it were - on its own horse (Robert Friedland is already riding with spectacular success into China through the Mongolian Steppes). In such circumstances, Noranda would have to stand in line with the competition, especially from "developing" countries like Chile, or "developed" ones like Australia.


"Does China Minmetals embrace the principles of corporate social responsibility, including good treatment of its employees and the natural environment, respect for human rights and so on?" asked the "radical right wing" Canadian MP, David. Kilgour in October. We know what Industry Canada's response is: "[F]oreign firms must meet a number of conditions in any takeover, in areas such as employment in Canada, the participation rate of Canadian executives in senior management, planned investments in research and development, and the takeover's compatibility with Canada's broader national and economic policies." The belief that some Chinese companies work to the lowest standards of accountability, and the highest levels of exploitation, should not put down simply to western prejudice or ignorance. Rhetoric from Chinese leaders has often seemed to threaten a reckless plundering of the earth's diminishing resources. Yet the concrete deals concluded between Minmetals and other companies, so far, have been largely under the aegis of states where labour relations are not of the worst kind (eg. Cuba and Brazil, Australia - and indeed through Inter-citic, Canada itself). It could be argued that, as an SOE, Minmetals is actually more responsible than many private companies, especially if the terms of employment contracts are guaranteed through bilateral agreements.

Dr Frost points out that, the more responsible the model of best practices being offered from the Northern side, then the better the eventual performance of joint enterprises in China itself. Few objective observers seem to doubt that Chinese intentions are good (though we know to which place good intentions may lead). "Sustainable development" has become almost as typical a catchphrase in the Peoples Republic, as it is among multinationals and investment banks in the North: meaning - as the Red Queen in Wonderland informed Alice - "exactly what I want it to mean"

The core question is whether, with all these intentions on paper, they stand a chance of being implemented or, at least, in time to prevent enormous, irrevocable damage in the current rush for resources. There are no existing charters for Corporate Social Responsibility (CSR) in China; even basic production statistics are suspect, let alone independent studies of working conditions and toxic emissions. Only outline figures of fatalities and casualties tend to be released. - and these erratically. The minerals industry seems, at best inscrutable and, at worst, in an unholy mess.

On the other hand, the notion that China's leaders - let alone millions of the country's citizens - care little about environmental aspects of the industry, even if true during the eighties and nineties, is rapidly wearing thin. In April 2002 the regime itself announced that Earth Day would focus on the damaging aspects of mining [Peoples Daily, Beijing, April 22 2002]. Wen Jiabao, before taking centre stage as premier last year, went on record as opposing expansion in the Western Area in search of minerals, arguing instead for "step by step" development that "pays attention to controlling pollution of air and water" [Andrew J Nathan and Bruce Gilley "China's New Rulers: What they Want", New York Review of Books, October 10 2002, page 29]

Once again, Stephen Frost counsels us that China may actually have something to teach the rest of us of us in terms of understanding the environmental and social impacts of the worst kinds of mineral extraction. His views echo those of John Wiebe, head of the Asia-Pacific Foundation of Canada, who supports the deal because Chinese firms may learn by running companies in democratic countries with modern labour and environmental laws: "They'll have a window on us but we'll have a window on them," [Today, "Business Respect", issue number 78 8/10/2004]

If Chinese companies are genuinely seeking to implement safeguards and incorporate the precautionary principle into future operations then, instead of being concerned that SOE managers (such as those at Minmetals) will weaken accepted Northern standards of best practice and site remediation, it may come to be the other way around. Perhaps we should be concerned that the Chinese will increasingly believe foreign multinationals represent the acme of the industry, rather than - as they have historically - comprising a patchwork of implementation: good, bad and totally unacceptable.

The following are recent comments by Dr Frost on the issue of Corporate Social Responsibility:

"The key question for CSR... is the effect mainland investments have on corporate accountability. Chinese companies are not well known - even in China - for their transparency, corporate governance or accurate financial disclosure. Not a single large mainland company has issued a triple bottom line report, or reported on social or environmental issues in any meaningful way. Several large companies have policies on environmental health and safety (see CNPC, for example - the company responsible, ironically, for a gas blow-out in Chongqing last year that killed 243), and CSR is getting more coverage in the mainland press. SA8000 has hit the news of late, so that even the Zhengzhou Railway Bureau website carries information on certification standards. But these efforts put them well behind the leaders globally and in Asia, in particular Japanese companies using, for instance, the Global Reporting Initiative guidelines. I believe that much of the action on CSR and certification will shift out of the West's hands to China over the next few years (whether it be in the form of the Chinese developing their own standards or tweaking CSR to fit with local conditions), but it remains to be seen how this will play out with companies investing abroad. The most positive result would see Chinese companies reporting on their efforts to become good corporate citizens, which would result in a dynamic interchange of ideas between China and the West on what constitutes CSR. All sides will, I believe, have a lot to learn from each other. Simply demanding that Chinese companies adopt full disclosure standards on social and environmental reporting will have limited impact, in the same way that foisting codes of conduct has failed to make a significant mark on workplace conditions in China. I think we are in for some interesting years ahead with China and CSR [Stephen Frost, Corporate Social Responsibility in Asia web forum: The issues, as they emerge in the Asia-Pacific Region October 2004].

It may also be noted that Minmetals claims to be the first (and it seems, so far the only) mainland Chinese company to have achieved an ISO140001 certification

A prediction

"Companies across the globe are not so much going to China as being sucked in [Such companies] will soon be making alliances with large corporations that, in the past ten years have acquired a high level of sophistication and are the competitive equals of western companies. There may come a time when those Chinese companies take on the west's own markets themselves...If, that is ,they are able to build their own competitive multinational enterprise"

[Gordon Redding, Financial Times 26/8/2003]

Appendix One

Email from Dr Stephen Frost, Research Fellow, SouthEast Asia Research Centre (SEAC) City University of Hong Kong, whose specialisms are: labour relations and regulations, impact on workers of foreign direct investments, and corporate social responsibility

Date: Mon, 22 Nov 2004 From: Stephen Frost Subject: RE: China's ODI and Minmetals investment in Noranda

Dear Roger

I've done a quick search through WiseNews (a Chinese version of LexisNexis). I didn't really expect anything to come up in the Chinese media critical of the 22nd largest SOE in China, and nothing did. What's interesting though is that a lot of mainland media outlets have carried stories (variations on the same story?) that DO cover labour issues. Only they come at it from a different angle.

Mainland stories on Minmetals proposed takeover mention labour issues in the context of labour problems in Canada. Their concern is not about bad labour conditions in China, but poor labour relations in Canada. This kind of interested me because it seems that both sides have completely different views on what constitutes concerns about labour. The Chinese are worried about the influence Canadian unions may exert, the potential for long term strike action, and the potential for financial losses (stories say that Pannell reduced staff by 12% and this had led to bad labour relations). If I had time I'd like to follow this up and see how it links in with rhetoric about the ACFTU and the role of a "responsible" trade union.

As for labour practices: critical information on labour practices in any of Minmetals core business or subsidiaries will not be published in the mainland press. And no independent group has looked into these issues. I can't find any recent information on serious accidents in Minmetals operations (and these might or might not have made it into the press - it's hard to keep serious accidents out of the press, but it happens; and small accidents are often overlooked, but they do make into some papers). I've also checked on the 5 companies in the consortium Minmetals is leading and can't find anything much on them either. The truth is that labour practices in large SOEs tend to be better than most, but that doesn't really tell us much about what actually happens in this operation. So I'm sorry; there's a vacuum here. I can't say one way or the other.

I've been pondering these issues for a while now, and have drawn no firm conclusions. Will Chinese companies export bad practices? I certainly didn't mean to suggest that because there are problems with Shougang in Peru this was indeed the case across the board. I was simply flagging the issue. I tend to think the opposite: that large Chinese companies (like Minmetals) are more likely to shift their practices to align with the more open and transparent environment in which they find themselves.

No companies to my knowledge are doing triple bottom line reports in China, but that doesn't mean they aren't thinking about these issues (there's a large debate over corporate social responsibility in the Chinese press). It's clear that some companies do want to do the right thing, but I don't know if Minmetals is one of them. It would be interesting to talk to some management on this. I've spent quite a bit of time talking to managers about CSR and there's a lot of interest, not just in the export manufacturing sector (which is where you'd expect to find it), but SOEs in sectors like railways and road construction are taking up these issues too. The government is also taking corporate responsibility seriously and is trying to clean up various problems (with varying degrees of success). I'd be surprised if Minmetals management wasn't engaged with the issues at some level.

No Chinese company has come in for the sustained criticism abroad, with regard to an acquisition, that Minmetals has, so I'm sure it's been a wake up call for others. If it does in fact acquire Noranda - which is looking less likely from my understanding - it will find itself in a completely different business environment. I can't say with certainty what that means, but I suspect that it will make business decisions in much the same way that Noranda did (with an eye on profit).

A lot of what I've glanced at in the Canadian press has a distinct odour of China bashing. The laogai accusation - onto which many have latched - is important but is not, as you say, easily substantiated. Unless it can stand in a court of law it seems to be a flimsy foundation on which to base the rejection of Chinese investment. Even the broader issue of poor Chinese workplace practices is so uneven as to be meaningless (some Chinese companies have much better OHS practices than Canadian ones). And arguing that Chinese investment should be prohibited on the basis of human rights abuse is about twenty years too late: this horse bolted a long time ago.

My personal view is that Minmetals has more to learn by operating in Canada than Canada has to lose by preventing this investment. I think every large Chinese company that operates overseas takes lessons back to the home market. Not all of those lessons are necessarily good, but some may be. And I think a small but growing movement of concerned citizens vis-a-vis corporate behaviour has started to emerge in China (GlaxoSmithKline, Dell and Wal-Mart have all come in for public criticism in the Chinese press for the way they behave). Moreover, companies like Kodak, Samsung and others are now under scrutiny regarding their policies of prohibiting trade union branches. People in China are concerned about corporate behaviour, including local corporations (and SMEs) that flout the law and steal, lie and injure and kill their workers.

The Minmetals issue has been widely covered in the Chinese press and so people are interested. It's possible that some of those - with some motivation from Canadian groups like CAW - could follow through on what happens when Minmetals acquires Noranda. It would be interesting for CAW to invite some mainland journalists with an interest in CSR to Canada so they could issue reports on just how well Minmetals was doing in furthering the good name of China overseas (which is important).

I'm sorry for being so long winded in telling you very little. The short version is that there's little to no information on whether the company has a poor record on industrial relations. I can only guess, which isn't much help. I think that, in the long run, Chinese companies will move into North America in increasing numbers. The object of the exercise will not be to stop them but working out ways that lessons learnt in North America over many years and long struggles can be transferred back to China in meaningful ways.

Kind regards


"A deal cut behind closed doors"

Appendix Two

Concerns about Minmetals and Sysco, 1996-1997 Extracts from: Hansard, Nova Scotia, December 4 1996 [Page 2881]

The honourable member for Lunenburg: Minmetals, many Nova Scotians, including members of this House, have been suggesting that it is time that they began to get involved with other people, get involved with Cape Bretoners, the community of Sydney, get involved with the steelworkers, people who have some understanding about the steel industry and about the impact of Sysco on their community. Instead, what we have had is deals being cut behind closed doors. We have had assurances like the one back on November 8, 1994, that said that this deal with Minmetals offers Sysco and its workers a new beginning. That is what the Premier and the former Minister of Finance said. I want to ask the Premier, will he not now admit that these secret backroom deals have not worked?

THE PREMIER: No . MR. CHISHOLM: Mr. Speaker, the Premier, his officials and the current minister looking after the future of Sysco have said they want to get out of the business. Yet what they have been doing is they have been participating, since they came into power, in the running down of this facility, in the running down of its reputation, trying to sell it off at bargain basement prices to anybody who will pick up a lead. In other words, the privatization approach clearly is not working.

I want to ask the Premier, is it not time for this government to recognize that there is a need for a new approach, an approach that involves the community, an approach that involves the steelworkers, Mr. Speaker, to try to find strategies that will fit in with the need in Cape Breton for jobs and for economic development?

THE PREMIER: Mr. Speaker, I guess the question I would ask him is, how dare he malign the people who have worked so hard in the last three years to make this plant work. This is unbelievable. At this particular point in time, the workers have been closely involved, the union has been closely involved working with the minister. They have been kept appraised for the last year and any of the discussions that have taken place have taken into consideration the expressed views of the steelworkers union in Sydney. Ask them what they feel about this and you know very well what they will say.


MR. SPEAKER: The honourable member for Cape Breton West.

MR. ALFRED MACLEOD: Mr. Speaker, indeed, yesterday's news about Sysco and the Global deal was very disappointing for everybody on Cape Breton Island and the Cape Breton steelworkers. The original deal between the government and Minmetals seems to have been filled with loopholes and escape clauses.

Mr. Speaker, my question through you goes to the Minister of Labour. I wonder if the minister will confirm that the reason the Sysco deal with Global failed so terribly is because of a very badly crafted agreement put together by the former Minister responsible for Sysco?

HON. MANNING MACDONALD: Mr. Speaker, I would like to thank the honourable member for Cape Breton West for his questions and to tell him that I am not going to comment on an original deal about anything. I am commenting on what is and what we are dealing with today. (Interruption)

Mr. Speaker, in regard to the Leader of the Third Party, the reason why I haven't got a question from him is that he doesn't know which side to take in this issue yet, whether to be for the plant, against the plant, for opening it, for closing it, a typical NDP position.

In dealing with the more sensible question from the member for Cape Breton West who I think has a genuine interest in what is happening down in Sydney, as do I, Mr. Speaker. (Applause) The problem with Sydney Steel is not because of anything that was done in an original deal. The problem is because Minmetals have decided they no longer want to be a partner with the Government of Nova Scotia and unknown to the government, went out and tried to sell its half interest to a firm called Global who, when pushed, couldn't come up with the money that we required to let them in the door. That is as simply as I can put it. We are trying to make the best of a bad deal here in terms of what Global has brought to the table.

There are a number of suggestions that the officials from Global knew nothing about a deadline that we had set. If you wish, I can read correspondence into the record or if the member wishes, I can table a letter suggesting that we did inform Global officials. We are dealing with the situation as we see it today. A very difficult situation and a very hard time, I might add, Mr. Speaker, for the people of Cape Breton who have suffered long and hard in the uncertainty about the Sydney steel plant and what it has done over the years. It has not been operated very successfully under government hands and I am trying everything I possibly can, and I am sure the member knows that, to try and achieve the best deal I possibly can to keep that plant open in private hands in the future. In that regard, we are pursuing all avenues.

I might add, Mr. Speaker, that in terms of the government's involvement, the government has a responsibility to the taxpayers of Nova Scotia and, simply put, are not letting anybody in the door unless they come with some financial ability to operate the Sydney steel plant.

MR. MACLEOD: Mr. Speaker, I want to thank the minister for his answer to that question and I look forward to the document that he spoke about. The minister did allude, however, that it was a bad deal. It certainly was a bad deal for the people of the steel plant.

Days ago, Mr. Speaker, we were being told that there was a deal close to being signed. Today in the news report we hear that there has been no audited statements for this plant. My question is simple and it is again to the Minister of Labour. Is the minister actually saying that those detailed negotiations were taking place and being carried out without this government actually having a true, accurate picture of the financial resources of that corporation?

MR. MANNING MACDONALD: Mr. Speaker, we have auditors that we employ to audit the books of the Sydney Steel Corporation and from time to time the auditors give us a report as to the financial condition of the Sydney steel plant, which, by the way, is not very good at the present time, which should come as a surprise to nobody.

In addition to that, the member made reference to the fact that I said that the deal was a bad deal. What I said, Mr. Speaker, was that the Global deal is a bad deal as far as I am concerned and as far as this government is concerned. We are not letting people onto that Sydney steel plant to again give false hope to the workers of that plant unless they come with what I would consider deep pockets and money they are willing to invest, not money they want to get from us to invest in the Sydney steel plant.

MR. MACLEOD: Mr. Speaker, again, I will be going back to the Minister of Labour. I wonder if the Minister of Labour will agree that, indeed, the loss of the CN contract has been a major stumbling block in what is going on at Sysco today?

I want to ask the minister if he can believe, as I believe, that one of the major reasons that this CN contract was lost to Sysco is that there was a poor management team put in place? It was a team put in place by the former minister who was responsible for that, and it was a team that time after time the steelworkers asked to have replaced. I want to know if this minister agrees that, indeed, there was a poor management team in place at Sysco?

MR. MANNING MACDONALD: Mr. Speaker, what we had there was a quality problem at Sydney Steel that we are presently addressing. Simply put, the answer to the question is that from time to time you have quality problems in rail production and, unfortunately, that was one that we had recently.

MR. SPEAKER: The honourable member for Cape Breton West.


MR. ALFRED MACLEOD: Mr. Speaker, again my question is to the Minister of Labour. If the minister really believes that answer, could he please explain to the members of this House why, shortly after he became the minister, the management team was removed and he replaced it?

HON. MANNING MACDONALD: Shortly after I assumed responsibility for Sydney Steel, I had meetings with Local 1064, the senior managers of Sydney Steel, government officials and officials from Minmetals. All of those meetings ended up with a common theme, they felt it was time for a change of management at Sydney Steel because there was a great unhappiness with the current management, both from the workforce and from senior management at Sydney Steel and, as well, the officials of Minmetals. So it was felt that in the best interests of the corporation and perhaps to give it some additional clout - I guess in terms of trying to give the corporation some of this additional clout and trying to effect a new deal - that perhaps if we cleared the decks with the very senior management that we would have a better chance of having a better relationship with Minmetals.

However, that was only one of their problems and the relationship continued to deteriorate from there. That is the reason why the current senior management is no longer there. There is new management in place. We have an acting president and he is doing very well, under very difficult circumstances.

MR. MACLEOD: I want to thank the minister for that answer, because I know that the steelworkers have lobbied long and hard for that to happen under the former minister and it took this minister to make it happen.

The minister has publicly stated many times in the last two days that Minmetals owes the provincial government as much as $14 million, and my question to the minister is quite simple. What steps is the minister now taking to ensure that Minmetals lives up to the commitments of the shareholders of Sysco, the people of industrial Cape Breton and certainly the people of the Province of Nova Scotia?

MR. MANNING MACDONALD: Mr. Speaker, again I thank the minister for that question and I am happy he asked that question because, yesterday, I instructed solicitors from Sydney Steel Corporation to inform the Chairman of Minmetals, by letter, that I would be requesting a meeting of the full board of directors of Sydney Steel to discuss the very problem that he is talking about, in regard to payment, and to try and find out definitively what Minmetals intends to do in this very difficult situation.

That letter has gone out to the Chairman of Minmetals and I have asked for that meeting, which is allowed for under the constitution of the agreement that was signed between Minmetals and the province. I will be waiting for an answer and I hope we can have that meeting soon and resolve that situation.

MR. MACLEOD: Mr. Speaker, my question again is for the Minister of Labour. I wonder if the minister would share with this House, and certainly with all Nova Scotians, where he and this government intend to go now with Sysco? What positive steps - and I emphasize the words "positive steps" - are being taken to make sure that Minmetals, the current contract is being lived up to and that the jobs of the steelworkers are being protected as much as possible?

MR. MANNING MACDONALD: I might inform the honourable member that no one is more concerned about the future of Sydney Steel than I am. I can assure you of that and the other members from Cape Breton share that concern with me. I am sure that all Nova Scotians are concerned about the livelihood of the workers who have toiled day in and day out in that very difficult industry that has come upon hard times.

We have to resolve a situation, Mr. Speaker, with Minmetals because they are a part owner of the Sydney Steel Corporation and at the end of 1997, if they live up to their corporate responsibilities, which they have not to date, could in effect become the new owner of Sydney Steel if they decide to exercise their options. I have to find out from Minmetals exactly what they intend to do. In the meantime I am open for any suggestions. If the honourable member or anybody else knows of a steel company that would like to take over Sydney Steel, I will certainly go and talk to them.

In addition to that, Mr. Speaker, I am initiating actions in going to people I know in the steel industry and trying to encourage them to put the word out that we have a modern mill in Sydney. We have an expert workforce. If a bona fide steel company would like to come and talk to me about acquiring the assets of Sydney Steel and operating a plant in Sydney, I would be willing to listen to them.

Comments on this paper are welcomed. Please email:

China Hikes Penalties on Illegal Coal Mining

Planet Ark

January 27, 2005

Shanghai - China will increase fines on illegal coal mines and raise the bar for mine permits, hoping to reduce accidents in an industry that claimed more than 6,000 lives in 2004, the country's central planning agency said.

The rush to produce coal for an economy that expanded 9.5 percent in 2004 has led miners to re-open old mines or dig perilously close to existing shafts.

Fines for illegal mining would rise by up to six times, with the penalty for sales from illegal operations rising to a maximum of 30,000 yuan ($3,625), the National Development and Reform Commission said in a statement posted on its Web site (

The new regulations take effect this week, or 30 days after the statement's issue date on Dec. 27, 2004.

To get an operating licence, miners must maintain capital of at least 50 million yuan and storage space of over 20,000 square metres.

Coal contracts must specify volumes, pricing and delivery procedures, the statement said, potentially restrict sales channels for illegal mines.

China houses the world's most lethal coal mining industry. For every 1 million tonnes of coal produced, 3 miners die from floods, gas leaks, tunnel collapses or fires -- a fatality rate 100 times that of the United States.

Major accidents can spur the government to shut nearby mines for inspections -- thereby raising coal prices and the incentive for illegal mining, state media have charged.

Nearby minerals mines have in the past been shut as part of crackdowns on illegal coal operations.

China is preparing new coal mining legislation to raise safety conditions in mines -- a task that will require $6 billion in investment in major state mines alone, the China Daily reported on Tuesday. (US$1=8.276 Yuan)

Reuters News Service

China Using Environment Rules To Help Cool Economy

Reuters News Service

January 27, 2005

Beijing - China has begun using environmental regulations to put the brakes on some projects and help cool its overheating economy, an environmental protection official was quoted as saying on Tuesday. Authorities recently ordered the builders of 30 infrastructure projects, most of them in the power sector, to stop work because they had flouted a law requiring environmental impact assessments.

But as well as ensuring environmental regulations were enforced, the order to stop work was also partly motivated by broad economic considerations, the official said.

"The environment has become a new way, in addition to things like interest rates, to cool down the economy if it is too hot," Hu Tao of the State Environmental Protection Administration was quoted as saying in the China Daily.

China's environment has suffered considerable damage in recent years as economic growth has accelerated. Leaders have been aware of the environmental costs of rapid growth but their main priority has been ensuring a strong economy.

But recently, the government has adopted a raft of measures to cool overheating in the world's seventh largest economy, which statistics on Tuesday showed grew at a sizzling 9.5 percent last year, exceeding forecasts.

The Environmental Protection Administration ordered the 30 infrastructure projects to halt operations because they had not undertaken environmental impact assessments before starting construction, China Daily said.

"Most of the projects, involving billions of US dollars and in 13 provinces and municipalities, are related to electricity generation," the newspaper said.

Among the projects were 23 power stations, including the 12,600-megawatt Xiluodu station on the upper Yangtze River and the 4,200-megawatt underground power station at the Three Gorges Dam, with a total capacity of nearly 32,000 megawatts, the environmental protection office said previously.

The China Daily said work had stopped on 22 of the projects but the builders of eight had defied the order.

Builders of the 22 projects that complied with the order had paid maximum fines of 200,000 yuan ($24,000) each but the other eight had "shown no sign of accepting the administration's punishment", the newspaper said.

"The number of environmental laws in China matches that in other countries, but the enforcement of laws is far from satisfactory," Hu was quoted as saying.

There was no information about what would happen to the eight projects that had defied authorities, or when work on the projects would resume. (US$1=8.276 Yuan)

Investors drawn to China despite risks

By Guy de Jonquieres, FT.Com

January 31 2005

If the quality of corporate governance was measured by published regulations and good intentions, China would be a model of probity. Its authorities churn out such injunctions almost weekly. But recent scandals and murky dealings at China Aviation Oil, the soon-to-be privatised Bank of China and a string of other companies are pointed reminders of the wide gulf between official pronouncements and commercial reality.

To be fair, China's regulators recognise what needs to be done and are trying their best to do it. They know systematic corporate misconduct undermines economic development and could scare off the foreign capital on which it depends. In that respect, at least, they are faster learners than authorities in Japan and South Korea.

Progress has undoubtedly been made, albeit from a very low level. The outlines of a clearer regulatory and legal framework are emerging, corporate boards are being established and some companies have begun to clean up their act. Jamie Allen of the Asia Corporate Governance Association, an activist group, argues that, when judged by the opaque cronyism and weak corporate accountability prevalent in much of Asia, China does not look quite so bad.

Yet even optimists expect just curbing rampant abuses to take a decade or more - and the path ahead is strewn with obstacles. They start with weak enforcement. The state-owned Assets and Supervision and Administration Commission, which oversees big state-owned enterprises, is still finding its feet. The China Securities Regulatory Commission, which supervises listed companies, lacks resources and sustained high-level political backing. Many regulations have no clear basis in law and are at the mercy of courts more disposed to favour powerful local interests than to dispense justice.

Those deficiencies are rooted in the intrinsic weakness and dubious legitimacy of the Chinese state. Its failure to develop strong independent institutions has left the Communist party as a central instrument for implementing policy. Sometimes, SOE heads also chair local party committees. In many SOEs, these enjoy a status superior to that of the board, assuming there is one. Independent directors, many with few qualifications for the job, are often kept in the dark.

Though capable of ruthless effectiveness, the party, by definition, is ruled by a political, rather than a commercial, agenda. In a system where all important jobs carry government grades, some heads of big SOEs out-rank their regulators, while their companies' performance may be only incidental to their career prospects.

Exposure to capital markets through public equity offerings has been scarcely more effective in imposing disciplines on managers. Many so-called privatisations so far have simply parcelled out dominant shareholdings to different arms of government, leaving only minority stakes for private investors.

Although ministries' direct interference in day-to-day management is being curbed, companies still face pressure to fulfil sometimes conflicting social and industrial policy priorities. That helps explain why studies have repeatedly found that many Chinese companies perform worse after privatisation than before.

For foreign investors, all this should amount to a large sign flashing caveat emptor in bright lights - all the more so as China prepares to sell off minority stakes in its large banks. Although they have been re-capitalised, the quality of their recent loans is unclear and they have still to undergo restructuring.

Yet where China is concerned, there is a long history of foreigners shedding their normal caution and being transported by heady visions of limitless gain.

Where else, after all, offers so many opportunities to participate in such a phenomenal growth story? And whatever the risks of plunging in, how much greater are the risks of being left out?

Few would dispute either China's economic potential or the country's capacity to harness it: only now are the implications starting to dawn on the world. However, China's ability to grow and prosper is one thing. For outsiders to reap dividends from it is quite another. Much more must be done to instil order in the country's turbulent corporate sector before those two interests are clearly aligned.

China Coal Crunch Expected to Worsen

Planet Ark

January 31, 2005

Beijing - China's coal shortage is expected to worsen this year in the face of increasing demand, the China Daily reported on Friday, as it struggles to clean up the world's deadliest mining industry. Coal consumption in China, the world's seventh-biggest economy, is expected to increase by 6 percent, to 2.1 billion tons, with demand continuing to outpace supply, the newspaper quoted Pu Hongjiu, deputy director of the China Coal Industry Association, as saying.

Coal fires up more than two thirds of China's generators. "Small mines with a production capacity of at least 200 million tons have to be shut down because they lack necessary safety control facilities," the report said.

Coal mine disasters killed more than 6,000 people in China last year, but the government's pledges to shut down small, illegal mines conflict with its rampant appetite for energy to feed its booming economy.

Power shortages have resulted in blackouts around the country and the commercial stronghold of Shanghai forced more than 800 companies to shift production to graveyard shifts this winter to ease pressure on the grid.

Reuters News Service

Orchid to buy copper giant

Jesse Riseborough,

Thursday, February 10, 2005

Orchid Capital has signed a letter of intent with the China Tibet Institute of Geology Survey to acquire up to 80% of the multi-million tonne Qu Long and Jia Ma copper projects.

The Qu Long project is around 60km east of Lhasa, the capital of Tibet, and according to Orchid hosts five million tonnes of copper metal, 35,000 tonnes of Molybdenum and 3200t of silver. Orchid said recent drilling by the Tibet Bureau of Geology and Mineral Resources indicated copper grades of up to 0.52%.

Orchid Resources exploration director Dr David Tyrwhitt said all drill holes at Qu Long have cut ore-grade mineralisation from surface to the bottom of the hole, with the ore body open at depth and the margin yet to be defined by drilling.

The Jia Ma copper skarn deposit is located 6km north of Qu Long and has reportedly been drilled extensively over 4km of strike length. Orchid estimates Jia Ma to contain an inferred resource of 500,000 tonnes of copper, 550,000 tonnes of lead, 60,000 tonnes of zinc, 450,000 ounces of gold and 23 million oz of silver.

Orchid Capital joint managing director Alvin Tan, said an independent consulting group would conduct a full technical evaluation of both Qu Long and Jia Ma to establish the resource and economic value of the projects.

"Minimum expenditure is yet to be determined, however Orchid will acquire its 80% majority interest by funding exploration and a full feasibility study of the projects," Tan said.

Chinese Coal Mining Update

Corporate Social Responsiblity Asia Journal - Weekly Vol.1 Week 6
by Stephen Frost

7th February 2005

Coal mining was in the news again last week, with China's biggest coal producing province, Shanxi, announcing new regulations stating that compensation per mining death must be at least 200,000 yuan. This is the highest compensation standard in the coal industry nationally and two mines in the province have already implemented the standard.

Currently,compensation per mining death is usually somewhere between 10 to 50,000 yuan. Shanxi has also stated that mining licenses will be revoked if more than 3 people die in a mine accident (Worker's Daily, 31 January).

According to Xinhua (3 February), Guizhou had 577 coal mine accidents resulting in 894 deaths last year, mainly in small and medium sized mines. The director of the Guizhou Coal Mine Coal Work Safety Monitoring Office stated that most employers and employees have little consciousness on work safety. He identified 7 types of coal mines that have to be monitored:

mines with a rating of "C" or "D" in last year's work safety assessment; mines with serious accidents last year; mines in areas where accidents happen frequently; mines located in dangerous area without adequate fire facilities; mines prone to water disasters; mines using specific mining methods; and mines mentioned by provincial work safe bureaux.

Zhengzhou (Henan) has issued a statement on mine safety for the coming year. Mine managers should visit the mine at least 5 times a month, and superintendents of work safety should visit at least 10 times a month. Females are prohibited from becoming mine superintendents.

Each mine must take 15 yuan/ton as a maintenance fee, and 2.5 yuan/ton for the work safety fund (Zhengzhou Daily, 3 February).

The Worker's Daily (31 January) unearthed a story of workplace brutality in a manufacturing plant in Guizhou, asking in its headline "Where does their audacity come from?" According to the article, managers slapped insubordinate workers' faces, beat them, deducted fines from their wages, and asked them to pay a deposit. They even, said the paper, ignored occupational injuries. So where did managers find the audacity do conduct themselves in such fashion?

The newspaper came up with three reasons: government officials turn a blind eye to illegal behaviour; the Department of Labour fails to inspect factories properly; and workers are unaware of their rights (due to an absence of a trade union to speak for them).

The migrant labour shortage (one of the big labour stories of 2004) resurfaced in the Worker's Daily (31 January). The paper argued that Zhejiang's labour shortage cannot be resolved by simply offering migrant workers a few quick bucks and a slap-up annual dinner.

Workers want more than a wage increase: they want better wages and improved working and living conditions, and for the factory to promote workers' rights.

In a similar article, the Worker's Daily (1 February) argued that migrant workers were not only concerned with receiving wages on time, but also about career prospects, advances in technology, labour protection, occupational health and safety, social security, and their children's education.

China Says Environment Spending Falls Short

Planet Ark (Reuters)

March 31, 2005

Beijing - China's spending on pollution control and environmental protection will fall at least 30 percent short of targets for 2001 to 2005 despite two decades of industrialisation that have left the country with some of the smoggiest cities in the world, the China Daily said on Wednesday.

Current plans called for China to spend nearly $85 billion in those five years to clean up notoriously smoggy cities and fouled waterways, the newspaper said.

But actual spending would only hit 70 percent of that target, Chen Bin, vice head of the State Environmental Protection Administration's planning and finance department, was quoted by the newspaper as saying.

Although officials have voiced increasing concern over pollution, environmental controls have mostly taken a back seat to efforts to develop the economy.

Plans being drafted for the five years starting in 2006 would earmark some $157 billion for environmental spending, Chen said.

That spending would account for about 1.5 percent of gross domestic product, but Chen said that proportion needed to rise to about 3 percent before noticeable improvements could be made in the environment.

China was focusing its environmental protection efforts on treating hazardous waste, sewage and garbage, and on cleaning up the many coal-fired power plants that provide most of the country's energy, Chen said.

China Tries to Stem Flow of Coal Mine Disasters

Story by John Ruwitch, Planet Ark (Reuters News Service)

April 6, 2005

Beijing - Mine accidents in coal-hungry China killed 1,113 people in the first three months of the year, the government said on Tuesday as it laid out a new plan to try to halt the carnage in the world's deadliest mining industry.

The figure represented a 20.2 percent jump in the number of fatalities from the same period last year, the State Administration of Work Safety said. The biggest problem has been enforcing the innumerable regulations designed to keep the industry's more than 25,000 mines safe, said Li Yizhong, minister of the administration.

"The most fundamental reason for these kinds of mining disasters is that supervision and administration are not very strong, and the laws are not strictly enforced," Li told a news conference.

Last year, more than 6,000 miners were killed in explosions, floods and other underground disasters in China, and Premier Wen Jiabao has pledged to spend 3 billion yuan ($362.5 million) to improve mine safety.

Funding for safety has been a problem and the administration planned to raise the bar, Li said. Mine enterprises were required to put aside two to 10 yuan ($0.24-$1.21) for safety measures per tonne of coal produced, he said.

"We are preparing to issue a supplementary document to exceed that amount according to the situation," Li said.

China produced 1.95 billion tonnes of coal last year but official media say it can safely mine only half that rate. The death rate in Chinese mines is 100 times that of pits in the United States.

Higher Compensation

The administration also pledged to arrest mine operators running illegal pits and supported high levels of compensation for families of victims as a deterrent.

"We are cracking down on all kinds of illegal mining operations, and rectifying mines that failed to meet work safety standards," Li said.

"Increasing the level of compensation is increasing the cost of accidents," he said, adding he hoped the high cost would make mine operators realise that paying for better safety would be cheaper.

Some areas have recently put the level of compensation paid to families at 11-15 years worth of victims' salary.

The government has had trouble shutting down unsafe mines, especially amid a nationwide shortage of coal, which is the main source of energy in power-hungry China.

Zhao Tiechui, deputy head of the work safety administration, denied that China's policy of reliance on coal was part of the problem, even though others in the government have admitted that China's thirst for coal was causing mine operators to keep unsafe mines open and push beyond safe production capacities.

"Mine disasters and China's energy policy are not directly related," he said, pointing the finger at mining conditions and the depth of mine shafts in China.

The State Administration of Work Safety was recently elevated to ministry status in a sign of the government's commitment to ending chronic safety lapses.

(US$1 = 8.28 yuan)

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