Extraction to Destruction? Chinese policy and practise in mining & metals

Published by MAC on 2007-12-22

Introduction

In 2004, one of China’s largest state-owned minerals’ corporations, Minmetals, launched a takeover bid for Canada’s oldest mining company, Noranda. The ensuing saga demonstrated a strong degree of hypocrisy on the part of many Canadians (verging on outright racism, with evocations of a “Yellow Peril” threatening the country’s resources) as they asserted that Chinese companies were more damaging, dangerous, and far less cognisant of corporate social responsibility, than their counterparts in the North. [see: Canada Worried by China Buying its Resources”, David Ljunggren, Reuters News Service, 27 January 200.]

In fact, as research into Minmetals’ corporate record demonstrated, this huge Chinese enterprise seems to have no worse a record in employment, human rights and environmental protection than many Canadian companies themselves. [“Minmetals meets Noranda”, by Roger Moody, Nostromo Research & MiningWatch Canada, 26 November 2004] (see footnote 1). Ironically, shortly afterwards, Noranda was absorbed by its domestic rival, Falconbridge; and in 2006 Falconbridge was itself gobbled up by UK-Swiss conglomerate, Xstrata - whose main shareholder is the world’s biggest private metals trader, the highly secretive Glencore.

The Minmetals takeover play was to come to nought for reasons which remain unclear (both parties held their cards close to the chest). It has not since been replicated, at least on such a scale and in such a manner, though this does not mean such takeovers are “off the agenda”. A rumour emanated from Beijing in early December 2007 that Baosteel, backed by China’s sovereign wealth fund, the CIC, might bid for Rio Tinto, to rescue the world’s second most powerful miner from the clutches of BHP Billiton.

[see: <http://www.minesandcommunities.org/Action/press1765.htm>]

Joint venturing

To date, however, Chinese mining and metallurgical companies have gone after joint ventures (JVs) with, or the purchase of equity in, companies operating overseas. However, the strategy has not quelled concerns about the so-called “China Threat”; on the contrary, those worries have increased and broadened (notably within Africa.) (2). So has the level of confusion and contradiction surrounding China’s “intentions” regarding access to raw metallic resources. On the one hand, industry leaders – such as BHP Billiton and Rio Tinto in 2006 – have warned that Africa’s own self-sufficiency is being put at risk by Chinese investment; while, on the other hand, medium and small-cap (“junior”) companies have gone out of their way to attract Chinese interests in their home-grown mines [“Canada woos mine partners from China”, Geoffrey York, Toronto Globe and Mail, 15th November 2006]

Many observers fear that Chinese requirements are denying the rest of the world access to an ever-dwindling supply of finite metals and resources. The country has become the world’s single biggest market for iron, coal, copper, cement, aluminium, nickel et al. It is also one of the world’s biggest potential consumers of uranium, having agreed with Areva in November 2007, to secure 35% of the company’s African output [“World View: Colonial style”, Jamil Anderlini, Financial Times, 27 November 2007]

Nonetheless, it is far from clear that this “unquenchable thirst” (as it is sometimes characterised) will last beyond the current decade. A raft of quasi-policy statements and documents from the administration since 2005 have asserted the need to “cool” the economy in general, and reduce primary metals’ demand in particular. [For details of such statements see: www.minesandcommunities.org and go to the China page.] Notwithstanding overall domestic shortages of most metals (as noted below), imports of alumina fell during the first 11 months of 2007 by just under 25%, because domestic alumina production had been hiked up nearly 50% (48.7%). [Interfax China Metals, 21 December 2007]

We might ask whether it is morally sound to berate the world’s most populous state for ostensibly raising standards of living for its citizens to a point still well-below consumption levels enjoyed in north America and most of western Europe?

Of more concern, it could be argued, is the degree to which the Chinese macro economy has become dependent on sales of manufactured “lux” goods to the rest of the world, and the contribution this manufacture (much of it rooted in increased minerals consumption) makes to aggregated global pollution and global greenhouse gas emissions (GGE).

Nor should we ignore the huge rise in detritus – including toxic metallic e-wastes – which continues to be dumped in China from outside: for example, British companies alone increased such dumping from just 12,000 tonnes in 1997 to nearly 2 million tonnes in 2005. [Mines and Communities, China Upate, 7 April 2007]

Confronting domestic shortages by increasing raw imports

Whatever the eventual resolution of its minerals policy, over the next few years China’s import demands are not likely to substantially diminish. On the contrary, during the first seven months of 2007 alone, they significantly expanded. [see BOX ONE: “Chinese on their mettle”]. Figures released by China’s National Development and Reform Commission (NDRC) on May 8 2007 predicted that the country would require 30 million tons of nonferrous metals by 2010 - including 6.5 million tons of copper, 14.40 million tons of aluminium, 2.6 million tons of lead, and 5 million tons of zinc.

While the NRDC recognised that metal recycling rates “need to be improved”, it acknowledged that China currently recycles only 60 percent of minerals, putting it 10 percent to 20 percent lower than that of “more developed countries.” (NRDC also reported that China's recycled nonferrous metal output in 2006 had increased 21% to 4.53 million tons, claiming this enabled a saving in energy “corresponding to 25.683 million tons of standard coal”). [see: “China should confront mineral reserve shortages” – NDRC, Interfax China Mining and Metals (hereafter called Interfax China Metals), 11 May 2007]).

In the first half of 2007, China's coal imports surpassed exports for the first time in its history. One domestic expert, in November this year urged the regime to adopt a policy of importing as much coal as possible in the near future: "Un-renewable energy resources, like coal, are becoming scarcer everyday, and the profits from investing in coal will rise very quickly in the near future. China should try to preserve its own coal reserves, reduce exports and raise imports." According to Zhang Jie, CEO of China Energy Investment Net: "Soaring crude oil prices will cause an increasing number of enterprises to turn to coal as an energy source next year. Moreover, the stable price of electricity in China, along with the coal-electricity tariff linkage, makes thermal power a very promising investment that banks are very willing to grant loans for. Therefore, I think China's demand for coal next year will rise faster than in 2007."

In the first half of 2007, China's coal imports surpassed exports for the first time in its history

State-run China Securities Journal says that the country will import between 150 million and 230 million tons of coal per year by 2010, significantly higher than the previous estimate of 70 million tons per annum. [Interfax China Metals, 23 November 2007]

Although the country’s own reserves of certain minerals are among the world’s largest, these are often of poor quality - as with much of the coal. Moreover, these reserves are mainly located in northern China, thus exerting transportation costs from the north to the south that are much higher than import costs. [Interfax China Metals, 23 November 2007] ). While Tibet is the source of some of the most valuable – and strategic - of China’s metallic minerals [see: “Mining Tibet: Mineral Exploitation in Tibetan areas of the PRC”, Tibet Information Network, London 2002], access to these continues to be a matter of some debate within the regime, although the “Go West” contingent seems currently to be in the ascendant.

The mining, upgrading (refining and smelting) of these resources are coming under increasing scrutiny for their unacceptable pollution, excessive emissions of GGE,and labour malpractices. Chinese coal mines send more workers to their death than any other type of mine elsewhere in the world.

A 2006 study also revealed that no less than 75% of all domestic cases of occupational illness are caused by pneumoconiosis, deriving primarily from coal dust and silica (a by-product of the construction and gem industries). [see: “ Huge pneumoconiosis toll”, China Labour Bulletin, Hong Kong, 30th June 2006].

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BOX ONE:

Chinese on their mettle

Between January and July 2007:

* China’s imports of COPPER ore and concentrates increased 27%. This was mainly due to supplies from PERU and the US, although the biggest single supplier was CHILE. ZAMBIA was the largest provider of copper anode, followed by DR CONGO

* BAUXITE imports rose nearly 160%, mainly due to the rapid expansion of alumina capacity. The key providers of bauxite ore were INDONESIA (more than two thirds of the total) followed by INDIA (around a fifth) then AUSTRALIA

* Imports of ZINC ore and concentrate galloped by no less than 201% over the same period in 2006, while refined zinc exports increased by 76%. The main supplier of zinc ore and concentrate was DPR KOREA, followed by AUSTRALIA and INDIA

* Imports of LEAD increased by more than a quarter, with the main supplier being PERU

* NICKEL ore imports skyrocketed no less than eightfold (by 827%) - the main providers being the PHILIPPINES (around half the total) then INDONESIA and NEW CALEDONIA

* China imported 221.50 million tons of IRON ore concentrate, with AUSTRALIA providing more than a third of the total and INDIA over a fifth. In July alone, imports were up by 24.94 percent on the same month in 2006.

[Information summarised from China General Administration of Customs, published by Interfax China Metals, 7 September 2007]

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A steep learning curve

Well before the “Minmetals-Noranda debate” of 2004 assumed significance in the general discourse over China’s overseas’ intentions, domestic enterprises - both public and private - had been shifting capital and personnel abroad. For example, Shougang Group’s investment in the Marcona iron ore mine in Peru dates back to 1992. Contracts for China’s uptake of foreign-derived mineral products date back much further:

BHP Billiton, now the world’s premier mining company, first exported lead to Fuzhou in 1891 (sic) under its former incarnation as BHP, and transporting finished steel and metallic ores in earnest to China more than forty years ago. [see Australian Department of Foreign Affairs and Trade “China Embraces the World Market: Case Studies of Australian Businesses in China, BHP Billiton, in draft, Canberra 2002.] BHP Billiton is an official sponsor of the forthcoming Olympic Games in Beijing, consigned the responsibility of sourcing and forging all medals to be handed out at the event.

According to China’s Ministry of Commerce, by 2005 more than half its FDI (Foreign Direct Investment) was being targeted at foreign mining ventures, primarily in Latin America and Asia. [“Mining a magnet for China's overseas investment“, Asia Pulse/XIC, 13th January 2005; see also: “Half of China's overseas investment falls in Latin America”, People's Daily Online, 7 January 2005]. Soon after joining the WTO in late 2001, the regime had introduced tax breaks and other incentives, in order to induce firms to extend abroad. Significant among these was the framework agreement for bauxite and alumina, signed in May 2003 between state-owned China Aluminum Company (Chalco) and Brazil’s Companhia Vale do Rio Doce (CVRD - now called Vale).

Two years later, China's Foreign Engineering and Construction Co secured a A$770-million (US$567.03-million) export-credit facility to promote Chalco's exploitation of the Aurukun bauxite deposit in Australia’s state of Queensland. [see: “Chinese companies advance across the globe”, China Business Weekly, 23rd October 2004]. This was followed by an inter-government government agreement between China and Gabon, in 2006, to exploit the huge Belinga iron ore deposit in the West African state. [see “Sinosteel” entry in “Corporate-country cross links” section, below]

By 2005 more than half China’s Foreign Direct Investment was being targeted at foreign mining ventures

It is therefore undeniable that the Chinese government has opted for an increase in raw material imports so as to feed its own downstream industries. As another indication of this strategic consolidation, the Metallurgical Mines Association of China (MMAC) last May urged domestic steelmakers to “develop overseas mines to secure iron ore supplies and relieve future resource shortages in China”. MMAC predicts that China's crude steel output will reach 540 million tons in 2010, requiring the import of 430 million tonnes of iron ore.

But the Association also sounded a note of caution: "Besides developing China's mines in a sustainable manner, domestic steelmakers should cooperate in overseas projects with both caution and long-term vision," announced a senior MMAC official at the 2007 Iron Ore Supply-Chain Summit held on May 16th in Sichuan Province's capital, Chengdu.

This proviso attached not so much to the socio-political pitfalls of venturing into foreign territory, as a tendency for Chinese companies to grab whatever seems available at a cheap entry price, or their failure to negotiate acceptable rates for prized deposits (Thus, they had failed to secure the world’s biggest iron ore mine, Vale (formerly CVRD)'s Carajas in Amazonia, and Guinea’s vast Mount Nimba deposit, which overlaps with a renowned Site of Special Scientific Significance.)

"Although some Chinese steelmakers developed overseas mines early on, many of the projects were low-grade and at inconvenient locations,” said the MMAC official, adding: “This is the main reason behind Shougang Group's consideration over the sale of its stake in the Marcona Mine." [Interfax China Metals, May 2007]

In fact, it was more than “inconvenient location” that rendered the Marcona project problematical. As Zheng Dong, an analyst from Guoxin Securities, has pointed out: “[An] important factor in choosing overseas mines is the political stability of the host country, so as to ensure that steelmakers minimise the associated risks that political unrest has on overseas mining activity.”

In theory, rising Chinese demand for ores sourced from abroad will exert enormous pressures on those whose land and labour is coming to serve new, or expanded, mining operations. (And this is without accounting for the implicit economic propping-up of unacceptable regimes, such as those currently ruling Sudan, Burma and Zimbabwe.). It also stands to measurably detract from the economic value which could be added on for the benefit of other economies by processing minerals in their regions of origin, rather than exporting them in an unfinished form.

Chinese officials are not immune from these considerations, nor the consequences of alienating communities and workers through ill-conceived mineral policies or projects. However, in practice, their response so far has been at best lukewarm and, at worst, manifestly unacceptable.

The dual purpose of this paper is, therefore, to map the trajectory of current Chinese-related mineral investments overseas and examine some of the actual practices. To assist, a summary is provided of key Chinese companies investing in foreign mining and metals enterprises (Cross linkages”), followed by Case Studies of the nature and impacts of that investment.

Corporate-Country cross-links: a selection

* Bosai Mining Co. Ltd. is China’s biggest bauxite processor and exporter; in early 2007 it took over management of the Omai Bauxite Mining Inc. in Guyana, after purchasing a controlling 70 percent stake from Toronto-based, Iamgold for $28 million – as sell as acquiring Iamgold's $18 million debt. The Guyana government holds the additional 30 percent stake. [Interfax China Metals, 9 March 2007]

* China National Geological & Mining Corp. (CGM), state-owned, has entered an agreement with Al-Masane Al-Kobra Mining Co. to jointly develop the Al-Masane polymetallic mine in Saudi Arabia – the first t mining project a Chinese company has undertaken in Saudi Arabia. CGM's other mining operations include the Augaro-Damiscioba project in Eritre; the TKC copper project in the Democratic Republic of Congo; and a manganese project in Cote d'Ivoire/Ivory Coast. [Interfax China Metals, 7 December 2007]

* Chinalco (Aluminum Corp of China) [see case study: Australia is China’s largest aluminum smelter, currently constructing a 270,000-ton aluminum smelter in Egypt with an (unnamed) Egyptian partner; most of the production will be exported.

In May 2006,Chinalco entered a JV with London-listed Aricom plc to construct a 30,000-tonnes per year titanium-sponge facility in Heilongjiang, while sourcing the raw feed - ilmenite - from mineral sands deposits at Aricom's mines across the border in eastern Russia. [Interfax China Metals, 17 November 2006]. Planned output from this operation is said to equal the country's current titanium sponge capacity, although domestic consumption has been only two-thirds of this. But – in an example of the contradictions which appear to hamper rational planning of China’s mineral strategy - just the day before this announcement was made, a China Nonferrous Metals Industry Association official told Interfax news service that: "The rapid growth in investment in China's titanium sponge smelting industry over recent years [represents] a blind expansion [which] will lead to resource waste, unhealthy competition and pollution, and cause China to become a global low-price titanium sponge supplier." [Interfax China Metals, 17 November 2006]

"Rapid growth in China's titanium sponge smelting industry [represents] a blind expansion [which] will lead to resource waste, unhealthy competition and pollution, and cause China to become a global low-price titanium sponge supplier."

* Baoshan Iron and Steel Group has a joint project with the world’s biggest iron ore miner, Brazilian-based Vale (formerly Companhia Vale do Rio Doce, or CVRD), to construct a five million-tonne capacity, low-cost , steel slab plant in Brazil. [Interfax China Metals, 21 December 2007]

* CNMC (China Nonferrous Metals Group Co. Ltd)[see Burma] Among all China's companies, CNMC possesses the largest holdings of overseas nonferrous metal resources. The group's trading value in Africa has witnessed dramatic growth in recent years. The company owns Hongtongshan Copper Mine in China's Liaoning Province, the Chambishi Copper Mine in Zambia, the Tumurtin-Obo Zinc Mine in Mongolia, the Letpadaung copper project in Burma and the Vietnam Taknon aluminum project. It recently landed US$150 million worth of copper trading contracts in South Africa and Namibia while a joint venture partner, Australia-listed Ord River Resources, commenced drilling at the Bolaven Plateau bauxite project in Laos in April 2007, projecting massive eventual output of 20 million tonnes of bauxite per year. [Interfax China Metals, 29 June 2007]

The company’s entry into Mongolia, through Xindu Mining, was initially based on a contract exempting it from corporate income tax for five years after the commissioning of the Tumurtiin-Ovoo zinc Mine in August 2005 which required the company to pay a resource [rent] tax of only 2.5 % of sales revenue. However, in response to widespread citizen concerns, and public demonstrations last year in the capital, Ulan Batar, the Mongolian government drew up a new agreement in August 2007, requiring Xindu Mining to pay corporate income tax at 50% of the existing rate for two years, and full corporate income tax for all subsequent years; it also instantly increased Xindu Mining's resource tax to 5%. Whether or not CNMC will “lobby” against the new legislation (as many other mining companies,. including Ivanhoe Mines and Rio Tinto are believed to have done) is not known. [Interfax China Metals, 21 September 2007]

* Jiuquan Steel (not to be confused with Jinchuan – see Case study: Australia below) in August 2007 signed a JV agreement with Kazakhstan-based Europe-Asia Industry Association (EAIA), under which the Chinese enterprise will acquire a 51% stake by injecting all its iron and steel assets, land and mines, as well as its stake in Jiu Steel Hongxing. In return Netherlands’-based International Mineral Resources BV (one of the world's largest private mining and metals investment groups) along with UK-based Eurasian Natural Resources Corp., will invest cash in return for the remaining 49 percent stake, potentially also gaining joint venture access to “development programs” for iron mines in Kazakhstan as well as “other overseas mineral resources.” [Interfax China Metals, 24 August 2007]

* Kunming Iron and Steel Group (Kunming Steel) recently received permission from the Lao People's Democratic Republic (Laos) government to establish two JVs for an iron ore mine and steel smelting plant in the south east Asian state. The iron ore deposit covers 25 square kilometers near Laos' capital city, Vientiane. According to a Lao government statement, the regime intends accelerating mineral resource development “by utilizing Kunming Steel's capital, technology and management expertise” and has offered the Chinese company “a favorable investment environment, including a five-year tax exemption, followed by a three-year 50% tax break.” [Interfax China Metals, 23 November 2007]

In November 2006, Kunming had already established a JV to develop the Quy Xa Iron Ore Mine in the northern Vietnam province of Lao Cai. [Interfax China Metals, 7 April 2007]).

* Luanhe Industrial Group. Founded in 1990, Luanhe is a privately owned steelmaker, controlled by Luanhe International Investment Development Holding Co., Ltd. which, apart from manifold interests in iron, steel and related minerals, is a large private conglomerate involved in cement manufacture and real estate. In November 2007, Luanhe bought a controlling stake in South Africa Pavillion, acquiring 74 percent of the VANMAG vanadium-titanium-iron ore mines

A year earlier, the company had acquired control of the Hyesan copper mine in the Democratic People's Republic of Korea., near the Chinese border, after the North Korean regime granted special tax incentives to the Chinese company [Interfax China Metals, 29 December 2000]

* MCC Copper and Zinc Co. Ltd., a China Metallurgical Construction (Group) Corp. (MCC) subsidiary, in November 2007 won the tender for the new Aynak Copper Mine in Afghanistan and is now working on a development plan to obtain mining rights, In addition to the mining project, MCC Copper and Zinc reportedly pledged to develop basic infrastructure in the country, including a hospital, and school. MCC won the tender in the face of counter bids from Russian-based Strikeforce, affiliated with Oleg Deripaska's Basic Element Group, U.S.-based Freeport-McMoRan Copper & Gold Inc., Canada-based Hunter Dickenson Inc. and London-based Kazakhmys Plc.

Other MCC projects include the Sandhak Gold and Copper project and the Dudar Zinc and Lead project in Pakistan. [Interfax China Metals, 23 November 2007]

* Minmetals is China’s largest metals’ trading company. In September 2006, it signed a nonferrous metals resource development agreement with the government of Bolivia. Five months later, it opened negotiations with Bolivia’s Empresa Metalurgica Vinto (EMV) for a tin importation deal. During a heady social conflict at this time, the Bolivian government nationalised EMV, taking it out of the hands of Glencore, the huge Geneva based private metals’ trader - although the Morales’ government then went on to conclude a one-year sales agreement with the disgraced company. A Minmetals’ official, cited by the Interfax China news agency, has indicated that the company understands the dynamics of such agreements, when acknowledging in September this year that: " The Bolivian government currently has no export duty on tin ore and concentrate, but is trying to encourage high value-added tin product exports" [Interfax China Metals, 21 September 2007].

That month, Minmetals announced a plan to purchase exploration rights to the Naboom ferrochrome Mine in South Africa at cost of $6.5 million. [Interfax China Metals, 21 September 2007] The company has been seeking several further joint venture partners in Brazil with CVRD, in Chile with Codelco, and in Vietnam. It has a JV with Century Aluminium of Australia, that has been exploring for bauxite in Jamaica, where it is also considering setting-up an alumina refinery. [China update, Mines and Communities website, 7 February 2007]. The company has initiated a strategic cooperation framework agreement KGHM Polska Miedz SA of Poland, the world's sixth largest copper supplier, to jointly develop both domestic and overseas nonferrous metal resources; KGHM has been supplying refined copper to China through Minmetals since 1997.

In August 2007, the company signed a contract with the Societe Nationale Industrielle et Miniere (SNIM) of Mauretania, pledging to purchase 1.5 million tons of iron ore annually. [Interfax China Metals, 24 August 2007]. Five months later, along with Jiangxi Copper , it acquired all outstanding shares in Northern Peru Copper (Peru), and announced a bid for a minority stake in Antofagasta’s Esperanza copper-gold project in Chile. [Interfax China Metals, 7 December 2007]

Late in 2007, Minmetalsis began negotiating with major Brazilian pig iron producer, Cosipar, to jointly develop a steelmaking project in Brazil, designed to reach production capacity of 2 million tons of steel by 2012. [Interfax China Metals, 21 December 2007]

* Ningxia Qingtongxia Aluminum Co. Ltd., China’s second biggest aluminium producer, has a 50% stake in a 1 million-ton alumina project in India, along with Indian partner, Ashapura Minechem, India’s leading processor and exporter of bauxite.

* North China Geology Survey Bureau (NCGSB) in early 2007 signed a MOU with the government of Sudan, to prospect for gold over approximately 6,000 square km of Nile State [Interfax China Metals, 12 May 2007]. NCGSB also plans to jointly develop gold, chromium, copper and nickel reserves in Zimbabwe with Beijing-based Star Communication Network Technology Co. Ltd. and further to expand its presence in Africa. [Interfax China Metals, 18 May 2007]

* Shangdong Guoda (Shandong Guoda Gold Co. Ltd) recently sealed a framework agreement with the government of Eritrea to access minerals - mainly gold, silver, copper, lead and zinc - with the Eritrean government supplying prospecting and mining data. [Interfax China Metals, 1 June 2007]

* Shougang (Shoudu Iron & Steel Group Co Ltd) [see: Australian case study] In June 2007, a blast furnace and coke oven, part of Shougang Steel's plant in Beijing, was declared the city's “worst single polluter” and closed down by the Chinese government, awaiting its transfer well beyond the future gaze of the Olympic masses[“Beijing to Shut Down Heavy Polluters During Games”, PlanetArk: CHINA, 1st June 2007].

In Cambodia, Shougang, along with Wuhan Iron and Steel Group (WISCO), Baoshan Iron and Steel Group (Baosteel Group) and Anshan Iron and Steel Group (Angang) has formed a joint venture for an iron ore project in the northern province of Preah Vihear, near the Thai border. A senior official from the China Iron and Steel Association (CISA) claimed that the consortium would “set a positive example to other domestic [Chinese] steelmakers, and help revitalize the current ‘disorderly state’ and high costs [they incur[ on overseas mining projects.”

* Sichuan Hongda Industry Group is planning to exploit mineral resources in Tanzania, primarily particular deposits of lead, zinc and gold. It has established a mining company in Tanzania, with registered capital last year of $10 million, and is reportedly engaged in infrastructure construction, including a seaport. [Interfax China Metals, 8 June 2007]

* Sino-Mining International Investment Co. Ltd. is a subsidiary of privately-owned Wanxiang Resources Co. Ltd.. Recently it set up a joint venture to develop the Hyesan Youth Copper Mine (Hyesan Mine), the first of its kind in the Democratic Republic of North Korea (DPRK).

The mine started operating during the 1960s, but production was halted during the 1970s due to serious pollution. Any output is intended at present solely for the Chinese market. Although Wanxiang specialises in overseas nonferrous resource development, its JV with Hyesan Mine Co. Ltd. is the company's first operational overseas project.[Interfax China Metals, 30 November 2007]

* Sinosteel in April 2007 agreed with the Gabon government to develop the Belinga Iron Mine and Mbigou Manganese Mine, along with the China Metallurgical Equipment Import & Export Corp (CMEC), Brazil's CVRD, and Comilog Inc - a France-Gabon JV. Underwriting the project to the tune of US$3 billion is the Chinese government which in September 2006 signed an agreement with the government in Libreville, permitting construction of a 560 km long railway, port, hydroelectric power plant, and the mine itself [“China to fund iron ore mining in Gabon”, African Press Agency, 8th September 2006]. Belinga is widely believed to be one of the last major untapped iron ore reserves in the world, containing at least a billion tons of 60% rich iron.

In November 2006, Sinosteel also signed a contract for ferrochrome mining and smelting in South Africa, with domestic company, Samancor Ltd.

* State-owned Western Mining Group Co. Ltd (Western Mining) (see Congo case study) specialises in the exploration of lead and zinc, copper and silver. Hubei Hongjun Investment Co. Ltd. holds a 14 percent stake; Hong Kong-based Dongfeng Industrial Co. Ltd. holds 10 percent; and Australia's Penfold Limited has 5%. It owns lead, zinc, copper and gold deposits in the Democratic Republic of Congo, Tajikistan, Mongolia, the DPRK, and a tin mining and a gold mining project in Kyrgyzstan. [Western Mining Report, April 2007]

In late 2007, China’s National Development and Reform Commission (NDRC) approved first-phase construction at Tibet’s Yulong Copper Mine - China's largest copper deposit by reserves - located on the high plateau of Jiangda county in Chamdo Prefecture. This is despite the fact that the project was previously delayed due to “pollution concerns”. [Interfax China Metals, 23 November 2007] Mining is expected to start in 2008 with a production target of 10,000 tons of refined copper[Xinhua news agency, cited in Interfax China Metals, 23 November 2007].

* Wuhan Iron and Steel Group (WISCO) in April 2007, along with Kunming Iron and Steel Group, and Baotou Iron and Steel Group, said it had entered negotiations with the Vietnam Steel Corp (VSC) to develop the Thach Khe iron ore mine in Ha Tinh. Overseas steelmakers, such as India’s Tata Steel, Essar, Korea’s POSCO, and the Russian Evraz Group, had also expressed interest in the project.

However, the mine is located on a coastal strip, whose excavation VSC had already identified as posing “many difficulties.” [Interfax China Metals, 7 April 2007] (Kunming Steel in November 2006 established a joint venture to develop the Quy Xa Iron Ore Mine in the Northern Vietnamese Province of Lao Cai. [Interfax China Metals, 7 April 2007]).

WISCO, in December 2007 signed a memorandum of understanding with Korean-based Daewoo International Corp. and Man Industries (India) Ltd. to cooperate on global pipeline steel trading. The three companies intend to extend their collaboration to technology research and development, steelmaking, and iron ore procurement. [Interfax China Metals, 21 December 2007]

* Xinjiang Tacheng International Resources Co. Ltd, in December began construction of a 1 million-ton lead and zinc selecting facility in Tajikistan, with plans to open a lead and zinc smelting facility at the Alden-Topcan lead and zinc deposit [Interfax China Metals, 21 December 2007]

* Yongcheng Coal. Four state-owned enterprises from Zhengzhou city in central China's Henan Province, headed by Yongcheng Coal and Electricty Group (Yongcheng Coal), recently jointly established a conglomerate named Henan International Mining Co. Ltd,. to develop bauxite resources over a 558 hectare lease area in the Republic of Guinea, West Africa [Interfax China Metals, 28 September 2007]

* Yunnan Tin Group – see Case Study Australia and Case Study Indonesia (below)

* Zijin (formerly Fujian Zijin Mining Group Co. Ltd) [see: Case study Burma]: The Zijin Mining corporation is rapidly rivaling the China Nonferrous Metals Group Co. Ltd. (CNMC) as the most controversial domestic mining company investing overseas.

As Interfax commented in May 2007: “Over the past two years, Zijin Mining's primary focus has been on overseas rather than domestic mining projects, including the Rio Blanco copper mine in Peru, and projects at the Blue Ridge platinum mine and Sheba's Ridge polymetallic mine, both located in South Africa [Interfax China Metals, 25 May 2007].

In December 2006, Zinin’s controlling shareholder was the Minxi Xinghang State-Owned Assets Investment Co. Ltd. which principally invests in a wide variety of industries including mining, public utilities, chemical products and industrial equipment manufacturing. [Fujian Zijin Mining Group Co. Ltd. annual report 2006]. The company’s second largest shareholder, HKSCC Nominees Limited, is a member of the Central Clearing and Settlement System that carries out securities registration and trust arrangements for customers.

Zijin is one of China’s foremost gold producers (probably the biggest) and operates metallic exploration projects in Vietnam and Mongolia [Interfax China Metals, 15 May 2007]. In 2007, it “inked” an agreement to acquire Avocet Mining plc’s gold mine in Tajikistan, via Avocet’s subsidiary, Commonwealth & British Minerals (UK) Ltd., in order to gain a 75 percent stake in the Zeravshan gold mine project. Later this year, Zijin signed a memorandum of understanding with the Republic of Tuva, to develop the Kyzyl-Tashtygskoe lead and zinc mine, close to the border of China's Xinjiang Autonomous Region.

"We are committed to respecting all laws and hiring local management staff in Tuva” declared Zijin’s president, Chen Jinghe, adding: “[W]e hope the Tuva government will provide favorable conditions, in terms of tax, project management, technology and power, in order to facilitate the smooth and rapid development of this project" [Interfax China Metals, 21 September 2007.]

In March 2007, the company announced its intention to join Jiangxi Copper Group and the China Metallurgical Construction Corporation in a bid to co-develop the world-class Aynak Copper Deposit, 35 km. south of the Afghanistan capital, Kabul [FZ Mining Group Annual Report, op cit]

Case Study One : Australia

By far the most important single source of minerals, so far identified as essential by the Chinese regime, is Australia. Two of the world’s biggest iron ore miners, Rio Tinto and BHP Billiton, have heavily relied on Chinese purchase of their products for many years. China imported $10.6 billion of mineral and metal products from Australia in 2005 alone – iron ore concentrates accounting for 41 percent of China's total imports of the product that year. Overall, Chinese corporate investment in Australia’s mining sector so far amounts to well over $1 billion, with further investments of several billion dollars slated for the near future

Bi-lateral cooperation between the two countries was identified in March this year as both “long-term and strategic” [“China says Australian mining cooperation is long-term and strategic”, Interfax China Metals, 23 March 2007]. A year earlier, the two governments concluded an agreement under which Australia will supply China with uranium once a safeguards agreement is in place. One Chinese Company, Yunnan Copper (in which Chinalco has just acquired a US$1.6 billion interest [Interfax China Metals, 2 November 2007]) has already staked out uranium reserves in Queensland.

Chalco (The Aluminum Corporation of China), listed on the New York, Hong Kong and Shanghai stock exchanges, is the second largest alumina refiner and one of the biggest primary aluminium producers in the world. It produced 1.93 million tons of aluminum and 8.83 million tons of alumina in 2006 [Interfax China Metals, 15 July 2007]. In May 2005, Chalco reached a land-use agreement, paving the way for a feasibility study at the Aurukun bauxite mine project in Queensland, Australia,.

The land use agreement was signed with Australia's Indigenous Wik and Wik Way Land Councils, and the Aurukun Shire Council. According to Deputy Premier, Anna Blighy, it also “ensured” that the project will adhere to the best environmental practices at present, and preserve the region's cultural heritage. The deal includes a plan for the “sustainable development” of the Aurukun region, to which Chalco agreed to commit more than AUD $2 million ($1.64 million) a year, “working with the community to ensure their ongoing involvement in the project.”[Interfax China Metals, 25 May 2007].

“The project will adhere to the best environmental practices at present, and preserve the region's cultural heritage.”

Significantly, Chalco won this potentially highly lucrative contract over the heads of global competitor,s BHP Billiton, Xstrata, Comalco Aluminium ( a Rio Tinto subsidiary), Alcoa and Alcan.

No doubt Chalco’s direct access to Chinese markets played a role in the Australian government’s decision. But the deal also fits neatly into that government’s perception that it must align itself geo-politically, as well as economically, with Asia’s most powerful state. This is confirmed by a wave of similar, if less ambitious, agreements which have been brokered in recent years.

However, it also clear that most of these contracts are dictated by caution, allowing “entry” at a modest price for a minority stake, while also enabling the Chinese partner to increase that stake at a later stage. After all, the Chinese stakeholders are, almost without exception, major corporations, while their Australian counterparts are customarily lesser players. Such a strategy differs from that employed in “lesser developed” states – such as DRCongo, Indonesia, Peru and Zambia - where Chinese companies have often aimed at securing an equal, or controlling interest, in various projects.

* Jinchuan - China’s leading nickel producer - along with Sinosteel, has entered acquisition negotiations with Fox Resources Ltd., active in the West Pilbara region of Western Australia, to increase its mine exploration and “development ability”. In mid-2007, Jinchuan acquired an 11.03 % stake in Allegiance Mining NL’s Avebury Nickel Project in Tasmania. [Interfax China Metals, 22 June 2007] It has also signed a framework agreement, to assist Australian mining company Metals X Ltd. in the development of its Wingellina Nickel Limonite deposit project in Western Australia. [Interfax China Metals, 30 March 2007] In 2003, the company reportedly struck a deal struck to take the entire output from Australian miner Sally Malay Mining Ltd.'s new Kimberley mine, dubbed by Reuters “a landmark for the industry”. [Reuter’s Financial News Australia, 18 October 2004]

* Anshan Iron and Steel Group Corporation (Angang) has purchased a 12.94 percent stake in Gindalbie Metals Ltd., a Western Australian iron ore group [Interfax China Metals, 22 June 2007]

* Chiping Xinfa Huayu Alumina Co Ltd., China's largest private alumina producer increased its stake in Australia’s Cape Alumina to 17.5% in May 2007.. Cape Alumina is the joint venture company overseeing the Weipa Bauxite Project, located on Aboriginal territory in Northern Queensland. [Interfax China Metals, 1 June 2007]

* On March 21 2007, Australasian Resources Ltd. (AR) announced that Shougang would make an interest-free loan of AUD 56 million ($46.27 million) for AR's Balmoral South Iron Ore Project in the Pilbara region. Shougang will fully fund project construction, including all related infrastructure, and has guaranteed to off-take all the premium iron ore produced over the project's 25-year lifespan. [Shougang Co. Ltd. H1 interim report 2007].

* Yunnan Tin Group, Asia's largest tin producer and owner of China's largest precious metals research and development centre, has a 33% JV with Australia’s YTC Resources Ltd; and a 5% in Metallica Minerals Ltd, to access nickel projects in Queensland [Press release, Metallica Minerals Ltd, 1 June 2007].

* Tanggang (Tangshan Iron and Steel Group Co. Ltd.),China's second largest steelmaker, has entered a long-term off-take agreement with Australian-based Fortescue Metals Group Ltd (FMG), enabling Tanggang to purchase up to 20 million tons of iron ore from FMG per annum over a 10-year period commencing in 2008. [Interfax China Metals, 1 June 2007]

* Baosteel, China's largest steel maker, signed a similar agreement with FMG in March 2007 year, agreeing to purchase up to 20 million tons of iron ore per annum over the next 10 years. [Interfax China Metals, 1 June 2007]

* Yunnan Metallurgical Group (YMG) in December 2007 formed a “long-term strategic partnership agreement” with Toronto-listed Ivernia Inc., to develop Australia’s Magellan Lead Mine in Australia. [Interfax China Metals, 7 December 2007]

* Hunan Nonferrous Metals Co., in late December 2007 agreed with Australia’s King Island Scheelite Ltd. (KIS) to redevelop the closed King Island Scheelite Mine, after the Hong Kong-based company acquires around 10% of KIS’ share capital [ Interfax China Metals, 21 December 2007]

Case Study Two: Burma

Chinese entrepreneurs have been rifling Burma’s mineral assets, especially gem stones and gold, for some years, specifically in Kachin and Shan States.

[see: Kachin Development Networking Group “Valley of Darkness: Gold Mining and Militarization in Burma’s Hugawng Valley”, 2007 at: http://www.kachinnews.com/Valleyofdarkness/ValleyofDarkness.pdf.

Also, Lahu National Development Organization, “Undercurrents: Monitoring Development on Burma’s Mekong” Issue 2 July 2006; and:

http://www.shanland.org/articles/environment/2006/Images/Undercurrents2.pdf.]

Galena (containing lead and zinc) has been transported across the Burma-China border by Burmese outfits [see: “Demand for Galena Mounts from China” Kyaw Thu, Myanmar Times, 31 October 2005]. Two coal ventures - Mount Popa in Mandalay Division, and the Tigyit Coal power plant and mine in Tigyit,Pin Laung Township, Shan State – also appear to be on the drawing board. [see Earthrights, “China in Burma:The increasing investment of Chinese multinational corporation sin Burma’s hydropower, oil &gas, and mining sectors” 2007].

In August 2005, China and Burma signed a mineral exploration agreement for nickel exploration at Mwetaun, where Chin State and Sagaing Division meet. Originally the agreement was between state-owned No 3 Mining Enterprise and Kingbao Mining Ltd of China, based in Hong Kong. [see Xinhuanet, 12 August 2005]. Later, it seems, the lease was transferred to Zijin Mining which has been carrying out a feasibility study into the project, along with the China North Industries Group, in a joint venture called Jinbao Mining Industry Co.

However, the big prize for Chinese “hard rock capture” in Burma must go to CNMC, for its acquisition of the Tagaung Taung nickel mine in the province of Mandalay. Here, reportedly around 40 million tons of lateritic nickel ore, at an average nickel content of 2.02 percent, lies waiting - as well as nickel silicate-associated chromite. CNMC has a 75% stake in the mine with No. 3 Mining Company possessing the remaining 25 percent along with mine exploration rights. [Interfax China Metals, 15 July 2007]

The big prize for Chinese hard rock capture in Burma must go to CNMC

The two companies signed a joint development agreement for Taguang Taung in July 2004, and a construction plan, drafted by CNMC with the major Australian engineering company, Hatch Group, was agreed by the military junta in mid-2007 [“China Nonferrous Metal Group starts nickel project in Burma” Comtex News Network 29 June 2007]

The project is estimated to cost nearly US$60 million, and is the largest of its kind in the lengthy history of China-Burma collaboration in mining although, according to Burma-observer, Eric Snider: “Electric power at the nickel mine site may be a challenge. A big dam and 600-MW plant is currently under construction by a Yunnan consortium on the Shweli river some 160 km northeast of Tagaung. About the same distance south of Tagaung another group of companies is involved in work on the 780-MW Yeywa hydro project on the Myitnge. Both projects are well underway but completion is still at least two to three years away.” [Eric Snider, comment posted on MAC website, 29 June 2007]

An even bigger triumph may be awaiting CNMC in the shape of the Letpadaung copper deposit, previously owned by Ivanhoe Mines of Canada, but which, according to reports from China, passed into the hands of the Chinese enterprise in 2006.

Case Study Three: DR Congo

In September 2007, the Chinese regime announced a US$5 billion credit facility for the DRCongo, to be invested in infrastructure. Much of this is aimed at advancing exploitation of the country’s massive mineral resources which include copper, cobalt, diamonds, gold, iron ore, and uranium. The deal caused a flurry of speculation about China’s intentions, not least from the IMF, World Bank and Asia Development Bank. Once again, the announcement exposed the myopia and self-interest of big mining companies when confronted by competition for African resources from that Big Power in the Far East.

Alex Gorbansky, managing director of political risk consultancy, Frontier Strategy Group, commented that the draft agreement “put pressure on both the large mining companies looking to get in and the small miners already there…It will give China a distinct advantage in the Congolese copper belt. Companies such as Anglo American and Rio Tinto were ,said Gorbansky, ”spending increasing amounts of time and money weighing opportunities in Congo. But China's move might mean they had left it too late to secure assets.” [quoted in Financial Times, 20th September 2007 ]

In fact, to date, Chinese penetration of the DRCongo has been modest, compared with that of Canadian and US companies. (Even China’s largesse of US$5 billion pales in comparison with the decision, made by BH Billiton in October 2007, to invest up to one and a half times that amount in promoting a single huge mining and minerals’ project in DRC.)

At present the most important Chinese ventures in the sector are those by:

* China National Overseas Engineering Corp (COVEC), the largest state-owned overseas construction company, which is planning to construct a copper-cobalt mining project in Katanga designed initially to produce 31,500 tons of copper and cobalt concentrates a year for processing in Chinese smelters. Its JV partner is to be Gecamines (GCM), DRC's state-owned copper and cobalt mining company, but with COVEC owning a controlling share [Interfax China Metals, 12 May 2007]

* Huayou Cobalt Nickel Material Co. Ltd (Huayou), a leading private cobalt chemical producer, licensed to prospect twenty cobalt deposits along a copper-cobalt belt on the border between DRC and Zambia, with “substantial exploration” scheduled to begin in 2008 or 2009. [Interfax China Metals, 12 May 2007]

* Another Zhejiang–based private company, Ningbo Xingrong Bicycle Co. Ltd (sic) which has established a mining subsidiary, aimed at exploiting a 27,200 square meters cobalt belt near Lubumbashi, in the southeastern corner of the country. [Interfax China Metals, 12 May 2007]

* Western Mining Group, with its investment in a copper-cobalt mining project. [Western Mining Report, April 2007]

Stung by realisation that contracts concluded between foreign mining companies and previous “governments” in DRCongo were defective – if not downright exploitative - the present administration set up a Commission to examine virtually all current major deals.

The Commission issued its draft report at the end of October 2007, and it does not make for comfortable reading. Global miners, AngloGoldAshanti and BHP Billiton, face strident criticism, along with smaller outfits such as Anvil Mining and First Quantum.

Nor do COVEC and Western Mining escape condemnation. As lead partners in joint ventures with Congolese companies, they are accused (inter alia) of:

* commencing operations without carrying out a proper feasibility study;

* in the case of COVEC’s Commus JV, of failing to provide proof of a valid line of credit from the Chinese government amounting to US$ 60 million;

* showing “no respect for its contractual obligations” in the case of Western Mining’s JV with Sodomico.

[see “TABLEAU D’EVALUATION ET DE CLASSIFICATION DES CONTRATS,”, ]COMMISION GOUVERNEMENTALE DE REVISITATION DES CONTRATS MINIERS, DRCongo, Novembre 2007]

Case study Four: Indonesia

Indonesia’s relative proximity to southern China, its vast and high-grade mineral resources, influential Chinese business community and (until recently) a contract of work system which strongly favours foreign mining companies, makes it a natural focus for Chinese investment in the sector. The country has established itself as one of the biggest providers of bauxite, nickel and tin to the Peoples Republic. That said, mine investments so far have not been as numerous ,or geographically diversified within the archipelago, as they might have been (half the projects listed below are in Kalimantan). But they are large in scale, and aimed at a broad palette of minerals; perhaps indicating how seriously Chinese businesses regard Indonesia as a potential cornucopia.

* China Special Steel Holding Co. Ltd., a Hong Kong-listed steel mill, announced in March 2007 that it would acquire Indonesian mining company, S.E.A. Mineral Limited (S.E.A.) for HKD 2.73 billion ($349.27 million) in order to secure iron ore and nickel supplies from a mine in Southern Kalimantan Province [Interfax China Metals, 9 March 2007]

* Guangxi Dameng Manganese Co. Ltd. recently reached agreements with several Indonesian companies for the development of mineral resources in Indonesia [Chongzuo Municipal Economic and Trade Commission, Announcement, 21 May 2007]. The company will invest US$40 million to jointly develop copper and molybdenum reserves with Aijia Mining Industry in Kalimantan, as well as intending to sink US$30 million in a joint nickel-project with Indonesian Precious Stone and Energy Co. Ltd. It also has plans to collaborate with Jiawang Group in exploiting manganese resources in Kalimantan and acquire a 50 percent stake in the project.

* Shanshan Steel Co. Ltd, a private company, in late 2006 established a JV to develop iron and coal mining with an unnamed Indonesian partner. [Interfax China Metals 17 November 2006]

* Tsingshan Group, a privately owned steel enterprise from eastern China's Zhejiang Province, in late November 2007 entered a JV with Indonesian state-controlled PT Antam Tbk to jointly construct a stainless steel plant in Indonesia. According to Tsingshan, if a feasibility study yields favorable results, the two companies will develop a nickel deposit, as well as set up an associated power plant, a ferronickel plant and a stainless steel plant with a designed annual capacity of 300,000 tons, on Obi Island in Indonesia’s North Maluku Province [Interfax China Metals, 23 November 2007].

* Yunnan Tin Co. Ltd., on May 29 2007 announced a JV with KJP Investment Pte. Ltd., PT Karya Abadi Selars and PT Bangun Prima International, to access base metals resources and construct a tin smelter in Indonesia, so as to further secure overseas raw materials. Yunnan intended to invest US$1.02 million to become the controlling shareholder. [Interfax China Metals, 1 June 2007]

Yunnan Tin in March 2007 also announced plans to jointly construct a tin smelter on Bangka Island,, with KJP Investment Pte. Ltd. and Pt Bangka Global Mandiri International and become the largest shareholder with a 51 percent stake. [Interfax China Metals, 9 March 2007]

Indonesian resistance to mining is widespread and well-articulated by Indonesian civil society organizations. (It was one of the first countries where a national group demanded a moratorium on all new large scale mining projects.) However, as yet, no mine with direct Chinese investment seems to have been specifically targeted.

In August this year, several mines on the island of Bintan – one of the main suppliers (together with Kalimantan) of bauxite to China – were shut down, following serious contamination of water supplies and presenting the prospect of permanent closure. [“Indonesia orders bauxite mining halt in Bintan”, Metal Bullein, Singapore, 16th August 2007; see also: “Bintan bauxite mines may be closed for good, sources say”, Metal Bulletin, Singapore, 29th August 2007]. Chinese reaction to the halt in supplies was muted, with Chiping Xinfa Huayu Alumina Co. (the main purchaser of Bintan bauxite) declaring that it was still getting supplies from the area, while “some of our suppliers say they still have stock, and apparently some mining is still going on, on the sly.”.

Case Study Five : Niger

In July 2007, the China Nuclear Engineering and Construction Corporation (CNEC) called a halt to its uranium prospecting in Niger, following the capture (and later release) of an executive working for the China Nuclear International Uranium Corp. (Sino-U) by the so-called “rebel” Niger Movement for Justice (NMJ). This “movement” seems comprised largely of Indigenous Tuareg, who had previously attacked an exploration camp owned by the huge French nuclear energy group, Areva. The NMJ had already launched an appeal to all foreigners working in mineral exploration to leave the "conflict zone", claiming that the government was betraying a promise, made in 1995, to equitably share economic development opportunities in the country.

In this instance, the NMJ declared that Chinese firms operating in Niger were helping the government to acquire arms that were then turned upon civilians: "The weapons that we seized in the recent attacks (on military outposts) showed that most of the arms the government forces are using are Chinese-made," according to NMJ spokesperson, Aghali Alambo, adding: "We are seeing weapons that Niger's army has not seen in 10 years — anti-aircraft guns, mines. We know the quality of arms that Niger has had."

“Most of the arms the government forces are using are Chinese-made”

The NMJ also accused "mostly Chinese companies of not employing local people and investing in basic facilities". [China ends uranium prospecting in Niger after rebel threats, Thomson Financial, 10th July 2007. See also: “Nigerien rebels: Chinese hostage to be freed imminently”, by Abdoulaye Massalatchi, International Herald Tribune, 11 July 2007. For updates on the situation in Niger, go to: http://m-n-j.blogspot.com, and: www.criirad.org (see "Dossiers d'actualite").]

On December 20 2007, Human Rights Watch published a report outlining and condemning violence – on both sides – in this uranium-generated conflict, but did not mention recent accusations of Chinese involvement. [Financial Times, 21 December 2007]. Amnesty International published a similar report the same day.

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* Regular updates on Chinese mining and metals at home and overseas are to be found at:

www.minesandcommunities.org

Footnotes:

1) One fear held by human rights advocates and trade unionists outside China is that the regime’s denial of free trade unionism and persecution of “dissident” workers’ leaders and lawyers who defend them, will be adopted by Chinese companies overseas. The fear is real [see for example: the summary on China in “2007: Annual Survey of Violations of Trade Union Rights”, published by ITUC, CSI, IGB, Brussels, September 2007.] By and large it seems that mining companies (in particular SOEs – state owned enterprises) have abided by labour laws in host countries. However, this is not to disregard specific violations – for example, those of health and safety in Zambia.

2) According to US academics, Gill and Reilly: “Most analysts…tend to exaggerate the prospects of China’s corporate engagement in Africa. As it deepens, the Chinese government will more likely find itself hamstrung by what theorists call a powerful ‘principal-agent’…Although China’s corporate engagement in Africa has yielded an impressive slate of strategic, economic, and diplomatic successes in recent years, a closer inspection suggests a fundamental underlying problem. China’s primary oversight agencies do not enjoy direct lines of authority over Chinese corporations overseas.”

Say Gill and Reilly: “[T]he Chinese government is now busily passing regulations aimed at controlling Chinese corporations in Africa and elsewhere abroad.” Nonetheless, “they are unlikely to be rigorously enforced. This poses not only a risk for China’s reputation but also raises a host of concerns in Africa and the international community regarding worker and product safety, fraudulent goods, unfair trading and investment practices, and lax environmental standards.”

Offered as “one promising place” to avoid such risks and negative outcomes, Gill and Reilly weakly propose “membership by the Chinese government and extractive companies in the Extractive Industries Transparency Initiative (EITI)” However, if their analysis is correct (and notwithstanding criticisms of the defects within the EITI) , such action would be merely palliative. One might well consider the only convincing response to this disjuncture between policy, set in Beijing, and corporate practice in the field, to be sanctions applied directly against the companies at home.

[See: Bates Gill and James Reilly, “The Tenuous Hold of China Inc. in Africa”, The Washington Quarterly, Summer 2007]