China Mining Report Q2 2008

China's metals and mining production was deeply disrupted in January and February because of extreme winter weather conditions. Snow and ice covered much of eastern, central, and southern parts of China for three weeks. Coal could not be shipped in time to many power plants. Transport breakdowns and power shortages rippled through the country. There were suggestions however that the crisis might have the positive effect of focusing the government's attention on the need to invest to upgrade the national power grid and improve coal infrastructure.

The People's Republic of China is a natural world leader in terms of both reserves and the production of several metals and minerals. It joined the WTO in 2001, and has since become an economic force to reckon with - doubling its manufacturing output and in the process accumulating over US$1trn of foreign exchange reserves. Endowed with abundant mineral wealth, the country leads in the production of copper, coal and aluminium. Further, its 1200 gold mines position it a worldwide fourth in production of gold - a metal of which it is also the world's third-largest consumer.

The national government is taking active steps to make the mining industry more competitive. Although it is a communist state, China introduced market reforms in the 1980s and today only about a third of the economy is directly state-controlled. The government is encouraging mergers and acquisitions as a means of ensuring optimal use of mineral resources, and barriers to foreign investment are gradually being done away with. Further, by the end of 2008, the government also plans to put in place mining reforms to restrict the exploitation of a mine's resources by multiple companies, thereby helping to pre-empt accidents, pollution and inefficiencies that result from more than one company exploiting the same mining area.

However, China's mining industry possesses its share of downsides. Primary among these is the scourge of illegal mining that has resulted in a high accident rate in the country. To tackle this issue, a US$14.42mn project has been launched by the UN to educate and train coal miners in five Chinese provinces, while the government is looking at revamping the country's mining policies and regulations.

The country is also planning to reassess the value of its deposits of as many as 25 metals and minerals - including uranium and coal. Mine safety is also high on the agenda of the authorities and it has been reported that by mid-2008 the government plans to close down around 23,000 small coal mines, which have proved to be extremely dangerous in the past.

Industry Forecast BMI forecasts an average industry growth rate of around 10.1% over the 2008-2012 period. The value of the Chinese mining industry is forecast to reach US$630bn in 2012, accounting for a significant portion of total GDP.