Six years ago, an advance team preparing for then-Chinese President Hu Jintao’s state visit to Zambia, Africa’s leading copper producer, made an unpleasant discovery: Mass protests awaited his groundbreaking event at the Cambeshi copper mine where Hu would announce the commissioning of a $200-million smelter.
Despite China Non-Ferrous Metals Corp.’s (CNMC) $130 million contribution to its rehabilitation, one of Zambia’s largest mines was also among its most controversial: Six workers, officials learned, were gunned down by Chinese managers there the year before and 50 workers died in a plant explosion in 2005; it had since ballooned into a nationwide political scandal. Pledges of $800 million in new investment aside, the damage was done: Hu’s movements were restricted to the capital, Lusaka.
When it comes to Chinese outward mining investment, such scenarios are emblematic of a worldwide trend. Chinese miners have been scouring the planet for decades. But with ramped-up industrialization beginning in 2000, unbridled access to state capital, few shareholder pressures and little CSR to speak of, moreover, they often leave many more responsible, transparent Western companies behind in the global commodities race.
Chinese miners do have their work cut out for them: with 10 cities with populations topping 10 million, the Chinese mainland is facing shortfalls in nearly all essential mineral commodities needed to fuel its spastic economic growth rate—especially copper, iron ore, bauxite, aluminum, uranium and magnesium. Nationally, China’s 10 largest companies, except banks, were in the extractive sector, based on foreign direct investment or foreign assets.
GovernmentMetrics International, a corporate governance research firm, meanwhile, noted that only one-third of directors at Chinese-listed companies are independent compared with 75% in the U.S.; only one-fifth of independent directors seem to have relevant experience in their sector, reflective of a patronage system that has long pervaded the Chinese Politburo and the country’s ruling elite.
China’s State Owned Enterprises (SOEs) themselves date back to the 1949 foundation of the People’s Republic and ascent of its Communist Party, followed by a nationalization drive that lasted more than five years. First announced in 1998 and launched in 2000, mining sector SOEs seeking overseas expansion got a push from Beijing’s so-called “Going Out” policy, to accommodate industrial growth. In 2004, the government granted further foreign exchange and financial help.
Initially, a majority of Chinese companies stayed grounded in early development and exploration projects amid increased asset costs, while China Minmetals Corp.’s Noranda takeover bid in Canada faltered. But after China weathered the 2008-2009 global recession—as its economy exceeded Japan’s as the world’s second-largest—China’s miners were able to disperse their interests and operations more widely. Since 2009, meanwhile, Beijing has prioritized its SOEs overseas as levers for domestic growth.
In the first six months of 2011, Chinese entities announced 75 acquisitions in the global mining sector worth $4.7 billion, according to PricewaterhouseCoopers (PwC), a U.K.-based professional services firm. Citibank has reported 217 mergers and acquisitions involving Chinese companies since 2003, with a market value of $50 billion.
By last year, as China’s slice of the world economy increased—now more than 10%—so, too, has its piece of the planet’s minerals reserves. As the world’s No. 1 energy consumer, China uses more coal than the rest of the world combined, buys more gold than any other nation and sources 40% of its copper. But while China has its own vast mineral reserves—including prolific coal and ore deposits—many have been shuttered in wake of industrial accidents, environmental disasters and other concerns; much of these go unreported.
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