China accelerates reforms

Within three years, China intends to dismantle or greatly downsize state-owned mining agencies that are not capable of making the transition to a market economy, government officials told a Canadian mining delegation during a meeting here in mid-May.

To help domestic corporations make the transition, the government is welcoming more foreign investment in the mineral sector (primarily through joint ventures) and streamlining the bureaucratic process for project approvals.

Even so, officials recognize that some “past disappointments” by foreign companies have led to a perception that China is a difficult place to do business.

Jiang Chengsong, vice-minister of the Ministry of Land and Natural Resources, admits that the first reforms aimed at allowing foreign investment in China’s mineral sector were less than perfect.

“The Mineral Resources Law, issued in 1986, did not confirm the status of foreign investors or fit our efforts to develop a socialist market economy,” he said. “We had many foreign friends [with legal concerns] asking us if mining rights were transferable, or it they could develop the mines they planned to invest in.”

In response to these and other questions, China’s government sent a delegation to Canada and the U.S. to investigate practices related to mineral tenure and investment.

By 1996, the Mining Law was amended to include major changes to the registration system based on the different types of mineral deposits and the size of investment.

“The amendments confirmed the legal status of foreign investors, ensured that all forms of foreign investment were equal and in line with international transfer of mining rights, and a compensation system,” the vice-minister said.

However, even after the second round of reforms, many foreign companies found working in China an exercise in frustration. A major complaint was the numerous bureaucracies — one for gold, another for base metals, another for coal, and so on — not to mention jurisdictional tussles between local corporations and ministries in Beijing, and disputes between local and foreign partners over economics, such as what constituted an economic cutoff grade. Some foreign companies became so frustrated they pulled up stakes and left for more favourable destinations, while others put their projects on the back burner.

Jiang Chengsong told the Canadian delegation that some of the problems occurred at the provincial and local levels, resulting in “dishonouring of mineral activities.”

More importantly, he added, the various state-owned entities for specific metals were downsized last year and then rolled into the Ministry of Land & Natural Resources, which now has the sole authority to approve all applications for exploration and mining permits. Responses to applications will be issued within 40 days of receipt.

The government has also abandoned unpopular policies, including one that restricted foreign companies to low-grade or metallurgically difficult deposits. It is also easier now to negotiate joint ventures that allow foreign companies majority control of mineral projects.

While these and other changes have improved the investment climate, ministry officials say more work remains to be done to develop the legal system and enforce the latest round of reforms.

Ministry officials said foreign companies have the best chance at success by forming joint ventures with local companies. Efforts are under way to streamline the application process for business licences by forming a one-stop system. However, officials caution that this effort is still “some distance away,” which means business licences must still be obtained from three separate ministries.

China is also developing the equivalent of Canada’s Geological Survey of Canada, in order to provide more information about the country’s mineral potential. By year-end, the government hopes to release the results of some preliminary exploration work.