Doing Business with China
Authors: Reuvid J.,  Yong L.
 Published year: 2003
 Pages: 281-282/648
Buy this book on amazon.com >>

Impact of WTO accession on China's mining industry

One of the key impacts of China's WTO accession will be on the current institutions, operating modes and marketing practices of China's mining industry. The WTO rules require the establishment of new institutions and mechanisms for the Chinese mining industry, which will fundamentally change the relationship between enterprises and the government. Government support in terms of low interest government loans and debt-equity swaps will be under the scrutiny of the WTO rules. Commercial loans will have to be provided under commercial arrangements, which means no bad debt write-offs will be possible. This will greatly impact on the old-fashioned state-owned mining enterprises which have relied heavily on government support. In addition, WTO-driven changes will also take place in the administrative systems and modes of management of China's mining industry.

WTO entry will also have an impact on the brain- drain, while the improvement of the investment environment will stimulate foreign interest in greater participation in the mining industry. One of the entry strategies will be localization, which means that foreign participants in the market will employ local specialists effectively to capture the local market. Retaining local talents in the state-owned mining operations will present a great challenge.

The reduction of entry barriers as a consequence of WTO entry will lead to an influx of foreign investment and import. The advantages of foreign mining companies, such as capital, technology, management, information and marketing networks will manifest themselves in the competition with local mining enterprises for advantageous mining resources. In fact, this competition has been ongoing since the 1990s and many local mining operations have collapsed as a result. The reduction of tariffs as an inevitable by-product of the post- WTO era will weaken the level of protection erected by tariffs. According to the projection by the China Exploration and Engineering Bureau, imports will increase as the level of tariff protection weakens (see Table 6.8.1 below).

Table 6.8.1: Forecast changes in the rate of tariff protection after China's WTO entry

Year

Rate

2000

4.7%

2002

4.1%

2004

3.5%

2006

3.2%

2010

3.2%

Source: China Exploration and Engineering Bureau

In addition, output, employment and foreign trade will also change (see Table 6.8.2)

Table 6.8.2: Forecast changes in China's mining industry
 

Output

Employment

Import

Export

Metal mining

“2.5%

“1.7%

0.6%

“3.9%

Non-metal mining

1.6%

0.4%

6.7%

“2.2%



Challenges ahead

Apart from the impact of WTO entry described above, the mining industry also faces challenges from within China. One major challenge is that the industrialization process has put great pressure from the demand side on the development of China's mining industry. In the past ten years or so, demand for mineral products has been increasing rapidly with the fast-growing economic development, has which averaged at an annual rate of about 10 per cent. Disparities among the reserves, output level and demand have become increasingly noticeable. Take aluminium for example: the reserve has increased by only 1.1 per cent in the past 10 years , while production and demand have been growing at average annual rates of 11 and 17.3 per cent respectively. The industry's ability to supply the most needed minerals has weakened, leading to drastic increases in imports. Moreover, the proven reserves for some minerals can hardly meet the demand in the next 10 or 20 years. In the future, the demand for minerals will increase at speed along with the country's industrialization process. China will soon become the world's largest consumer of many key minerals.

The requirements for sustainable development of the mining industry are also a source of pressure. Currently, the rate of utilization of mineral resources has been low. The runaway exploration of mineral resources has inflicted both biological and environmental damage. The dilemma that the industry is facing is that resources of key minerals are in serious shortage while crude mining operations are wasting the precious resources, and the biological environments in many localities are already fragile and mining operations have further damaged them. To reverse the situation, it is imperative to increase exploration efforts to discover more reserves, improve the rate of resource utilization, promote resource- efficient production processes and technologies and, more importantly, maintain the balance of the biological environment. All of those, however, will require greatly enhanced technological input into the existing operations. Many of the local mining operations do not have the financial strength or technical capability to achieve the much needed technological advancements. It is a pressing issue for the industry to maintain a sustained mineral supply while keeping a sustainable social and economic development in the country.


Doing Business with China
Authors: Reuvid J.,  Yong L.
 Published year: 2003
 Pages: 281-282/648
Buy this book on amazon.com >>

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