China Update

China Update

10th September 2006

A coalition of Canadian Tibet Rights groups has called on Canadian companies, specifically in mining, to repudiate investment in Chinese-occupied Tibet.

Following the shooting by police of six mineworkers at the Chinese-owned Chambisi mine in Zambia, the country's opposition leader has said he will reject all Chinese investment and recognise Taiwan, should he win the coming elections on September 28th.

Undertandably, this has not endeared Sata to the Chinese regime; Chinese firms have now suspended investment in Zambia, threatening to withdraw completely should Sata come to power.

Ironically, just last week, Fujan province said it was aiming to attracting increased Taiwanese investment in its metals processing industries, without attracting any adverse reaction from the government..

A new report reveals that the regime would need to pay almost as much as it has gained in economic growth, just to cope with the country's toxic pollution in the year 2004.

Officials are acknowledging the poisoning of more than 300 residents near a lead smelter in Gansu province - although the Hong-Kong based South China Morning Post puts the figure at no less than 2,000 victims.

A US scientific team has accused paint manufacturers of adding dangerous amounts of lead to their products, thus affecting millions of young people in China, India and Malaysia [see India update, this issue].

Onwards - and outwards

Closures of illegal mines continue .Beijing City government says it has shut down some 450 mines under its jurisdicition and will close almost as many more before 2010.

The National Development and Reform Commission (NDRC) claims the country's aluminium sector is "still over-expanding" with no less than fifty three projects in the sector currently under construction. The NDRC also says that more than half (456 out of 779) of China's bauxite mines are operating without a licence.

Meanwhile, yet more joint ventures and investments in foreign mines have been announced over the last fortnight.

Mimetals (which last year failed in its bid for Noranda) has entered a 50/50 joint venture with Codelco of Chile, the world's biggest copper producer, at a cost of US$2 billion. Last year China absorbed 20% of the world's global supply of copper, while Codelco delivered 10% of it.

Two other Chinese companies are buying into a vanadium and iron ore mine in Western Australia, while Xiamen Tungsten is to re-open its tungsten mine in New South Wales. Chinalco is also to construct an alumina refinery in Queensland with a huge projected 2.1 million tonnes a year ouput.

The private Huaxi group says it will be developing a copper mine in Mexico,. But most controversial of all recent foreign forays comes from the Jinchuan group. China's biggest nickel company has invested heavily in Kenya's Kwale titanium mine, operated by Canada's Tiomin. This project has been a target of militant opposition by local farmers, and leading Kenyan citizens, for several years.

Shady deals and the risks and rewards of investing overseas

A recent summary of Chinese views on the listing of their mining companies overseas (published by Interfax China Ltd) makes interesting reading. Its key points:

* Since the largest contributors to China's mining and metals output are state-owned, operating under conditions of secrecy where "shady deals" (sic) have become "commonplace", they have to confront more rigorous listing requirements on overseas markets; therefore few have so far ventured overseas - even with government blessing

* Nonetheless, the state companies are being pushed into more and more overseas transactions, not only in order to access international capital, but because permitting for new projects within China has become "painfully slow."

* So far, Chinese experience of overseas listing has been mixed: some companies claiming their stock value gets devalued in an IPO (public offer); others concluding that it's the only way to go in order to increase that value. In the long run China aims to improve its own reputation as an international finance centre, so that companies come to list there in the first instance.

Whatever happens, according to one anlayst (with Everbright Securities):

"The bottom line is the government always holds the controlling interests in the internationally listed state-owned companies".

So, at least we know who to blame when thebig Chinese outfits really take it in mind to capture foreign mining capital - turning the relative trickle of current joint ventures and debt financing into a veritable torrent.

[Additional information for this update comes from Interfax China Ltd, September 1 - September 9 2006]