Outbound mining projects on the rise

Some participants in the 2014 China Mining Congress and Expo, which opened on Oct 21 in Tianjin, take snapshots of the minerals on display. [Provided to China Daily]

Increasing demand, market realities pushing Chinese companies abroad

China's outbound investment in mining assets rose 83 percent to $24.8 billion last year on the back of the nation's growing appetite for commodities, industry experts said on Monday.

Ban Yongzhi, an official with the foreign investment and cooperation department of the Ministry of Commerce, said China's outbound investment in the mining sector reached $106 billion by the end of 2013 and accounted for 16 percent of China's overall outbound investment.

During the first nine months of this year, China's outbound non-financial investment reached $74.9 billion, up 21.8 percent year-on-year, according to the ministry.

"At present, 1,397 Chinese companies have invested in foreign mining assets like oil and gas exploration, ferrous and non-ferrous metals exploration and refining," Ban said. "Chinese mining companies are accelerating their steps in overseas markets."

Under the new foreign investment management guidelines that were implemented from this month, companies only need to maintain records for outbound investments projects rather than having to get official approvals.

"Up to 99 percent of the projects require only records and a few ones involving sensitive countries or industries still need to go through the approval process," Ban said. "The new guidelines will boost Chinese companies' outbound investment, especially in the mining sector."

China has reduced the approval process for domestic companies that want to invest overseas from 15 days to about three days.

He said many companies chose to invest abroad because they need to improve their production techniques and to be a part of the global supply chain for raw material sourcing.

The Zhejiang-based and privately held mining firm Huayou Cobalt Co Ltd decided to invest in cobalt and copper mining, processing and refining plants in Africa in 2006.

Huayou Cobalt was initially a trading company.

But as China's demand for cobalt, an important raw material for batteries, grew, and with about 90 percent of the demand coming through imports, the company decided to invest in the cobalt mines of Africa, Li Xiaodong, vice-president of the company, said.

Although Chinese mining companies have been investing in countries such as Australia, Canada, Africa, Russia, Peru and Chile, there are still obstacles hampering further growth.

Zhou Yongmei, senior manager of the mining sector with the World Bank, said most of the Chinese companies invest in low-and middle-income countries.

"These countries have a vulnerable political system that often poses risks to investment."

She said Chinese companies take huge risks when they invest in countries where there are not enough jobs for locals. Civil wars can also cause huge capital losses.

"The government is working on steps to improve and increase overseas investments by promoting the green-credit policy," she said.

The Ministry of Environmental Protection will soon submit a list of companies that have violated environmental protection regulations to the China Banking Regulatory Commission. The commission will limit, suspend or withdraw loans to the companies in the list.

Bie Tao, deputy head of the policies and regulations department with the environmental protection ministry, said mining companies must take steps to control the environmental impact from their operations. "Environmental risks are the main criteria that banks weigh before approving loans," he said.

The government would use the loans and other financial measures to limit overseas investments and ensure that the companies work in an orderly fashion.