1. Sector Overview
China is the world's largest consumer and producer of metallurgical minerals, including iron ore, copper, aluminum, nickel, zinc, lead and tin. China 's rapid industrialization has been consuming raw materials at prodigious rate. Its insatiable appetite for base metals is regarded as one of major engines pushing up global commodities prices. In 2006, China imported 3.6 million tons of copper concentrate, 3.9 million tons of alumina, 3.8 million tons of nickel ore and 326 million tons of iron ore.
For many years mineral resource exploitation and consumption have experienced rapid growth. Mining and metal refining procession has been a key economic driver for China, which employees a significant part of the population. With the expansion of its domestic industry, there has been a greater requirement for technological innovation and efficient management for mining and refining operations. Over the last few years, China 's mining equipment market has experienced rapid growth. In 2002, market demand was $1.883 billion, while in 2006 the figure quadrupled to $7.476 billion. Imports of mining equipment accounted for more than 15 percent of total market demand in 2002, 2003 and 2004. However, as Chinese equipment makers grew and matured, the import share of mining equipment fell to approximately 8 percent in 2005 and 2006. Germany, U.S., Australia, Japan and Sweden have been the top 5 mining machinery exporters to China in the last 2 years. Sandvik, Caterpillar, DBT and Joy Global have all set up offices and manufacturing facilities in China.
China's own mineral resource reserves are currently unable to meet domestic downstream demand, and importing metals has become increasingly important. As a result, the demand for mineral resources and energy is growing very fast. The Chinese government has emphasized the importance of increasing the efficient use of natural resources and, is searching for other supply sources. Chinese mining companies, especially large state-owned enterprises, are encouraged to invest in mining properties overseas. Some of these companies, such as CNMC, MCC, CHALCO and Sinosteel, have a few properties abroad. Others such as Minmetals, Jinchuan, Zijin, Jiangxi Copper and China Gold are also actively looking for good project opportunities.
2. Market and Sector Challenges (Strengths and Weaknesses)
Demand for coal and metals and increased production are the main driving forces of market demand growth for mining equipment. Such growth will continue over the next few years. In contrast to this high demand, the explored ore reserves in China are still inadequate. In 2006, China's State Council issued a statement to promote geological prospecting and exploration of 16 different mineral resources, including petroleum, natural gas, coal, iron ore, copper and bauxite. In order to upgrade the efficiency of existing mining and production facilities and improve the work safety and environment pollution practices of the mining industry, a mine integration program has also been launched to consolidate the mining of 15 different mineral resources by 2008, including coal, iron ore, copper, bauxite, zinc, molybdenum, gold, zinc, tungsten, tin and rare earth. Such an initiative will generate opportunities for both equipment suppliers and mining exploration companies.
Despite many business opportunities, there are also challenges for companies carrying out mining and mineral related businesses in China. Mining exploration in China is still considered a risky business by lots of foreign investors due to a restrictive and sometime opaque policy framework at the local level. Even though the number of international players, including Canadians, in China is still high given the increase in metal prices, an expectation that this price trend will continue, and the advocacy efforts of the Chinese Ministry of Land Resources, most foreign funded projects are still at the exploration stage.
Canadian companies face strong competition from both domestic firms and other international players. By the end of 2006, China had a total of 751 mining equipment vendors. Among them, over 90 percent were domestic companies and around 7 percent were foreign invested joint ventures or wholly foreign-owned companies. The local firms' competitive advantage lies primarily in cost.
3. Sub-Sector Identification
Mining Equipment, Technologies, and Services
In the last few years, frequent mine disasters have forced the Chinese government to take action to change the image of its mining industry, especially coal mining. Other than direct investment by the government to upgrade mining technologies, taxation and administrative regulations on mine safety are also being introduced to encourage the mine owners to allocate funds for safety improvements. Canadian companies that provide ventilation, underground communications, gas detecting, mine management and other safety products will have good opportunities in this market. More resources and time should be spent to promote the export of the above products to China.
As more and more international mining business players come to China, and Chinese companies venture overseas, it can be expected that there will be a significant increase in the demand for all round services associated to the mining industry, such as environmental assessments, project management, design and engineering. China's commitment to improve its legal and regulatory system, as well as a few recent (in 2005 and 2006) noteworthy foreign funded project successes, from the exploration to the mining stage, are sending out encouraging messages to service providers.
Advocacy for Canadian Companies in China
There has been a big flow of Canadian junior mining companies to China in the last 5-8 years. Some major mining firms are closely watching project opportunities in the country. This is largely because of promising metal prices in the world market in recent years, and the big appetite in China for a steady supply of resources to feed the fast growing economy. Although there have been several successful examples of firms progressing from the exploration to mining stage, quite a number of other firms still face regulatory and policy obstacles, which have an important negative effect on their project goals. Much effort has been spent on advocacy for Canadian investors, so as to increase their chances of success with their mining and exploration activities in China.
Attracting Chinese Investment to Canada
If China wants to maintain fast economic growth, a key priority will be to secure its supply of resources. With the call of the "Go-out" strategy, Chinese Mining corporations are seeking development and profit opportunities in mineral resources overseas. Canada has received great attention from China because of its abundant natural resources reserves, and its role as a leading center for mining financing.
However, different cultures, government policy and a lack of good project information are viewed with concern by certain potential Chinese investors in the mineral sector. T here have been a few partnerships established between Canadian and Chinese firms in the last few years. A number of program and initiatives have been developed to introduce the Canadian investment environment, and to provide the Chinese people with enough information.
Canadian Government Contacts
Canadian Embassy, China
Contact: Marc Parisien, Trade Commissioner
Canadian Embassy, China
Contact: Wendy Wang, Trade Commissioner
Foreign Affairs and International Trade
WOA (China Geographic)
Contact: Brendan Murphy, Deputy Trade Commissioner
Email: Brendan.murphy@interna tional.gc.ca
Foreign Affairs and International Trade
125 Sussex Dr.
Ottawa, ON K1A 0G2
Useful Internet Sites
Worldwide industry sites
Source: The Canadian Trade Commissioner Service