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China Mining For Foreigners. Fuhgeddaboudit!

By Dan Harris on Posted in China Business, Legal News

Had the chance the other day to speak with the father of a friend whose very large company was for many years involved in various mining ventures in China. This person confirmed what I had been hearing for years, that the entire “system” in China is rigged against foreign companies involved in this industry. 

According to this person, whose company eventually left China after investing tens of millions of dollars there, the system is set up to encourage foreign companies to come in to China to work with Chinese companies. The Chinese companies are then encouraged to “milk” whatever expertise they can from the foreign company, while at the same time, “doing whatever they can to pull as little out of the ground as possible.” This person believes that is China’s policy in all industries, but obviously to a much lesser extent.

Is this really true for all of China’s natural resource/mining industry? To what extent is this true of China policy as a whole? My view is that though China might in theory like this to be true for all industries, it realizes that it cannot act that way or it will get dinged by the WTO and all foreign companies will leave. It therefore goes to the edge where it can and then, just as it did with its indigenous innovation policy, backs down when it is politic to do so.  What do you think?

  • Good for them

    So the Chinese are not so dumb after all, good for them.
    Who, in his right mind, would let the likes of BP, Halliburton and Rio Tinto to rape his motherland?
    Not under Mao’s watch..

  • Aaron

    I don’t know if that is entirely true.
    I know Alcoa made butt loads of money from Chinese Aluminum, and then turned around and sold its Chinese subsidiary for huge returns.
    That said, mining in China is very territorial politically. Legitimate mining companies are usually “connected” with the government locally. (Hence, there are also a lot of illegal mines operated by guys who are not so connected, and they merely bribe the officials to ignore what they are doing.)
    It’s far more territorial than most industries in China, except for perhaps defense.
    As a consequence, investing in mining in China is like investing in Casinos owned by the Godfather.
    And as we know from the movie, the Godfather will buy you out (one way or another). If you are lucky, like Alcoa, you retire rich.
    (not saying Chinese mining companies are mobs, but they are mob-like, similar to some of the mineral tycoons in Russia, and also a little Rockerfeller-like).

  • Hugh Campbell

    Insanity: doing the same thing over and over again and expecting different results. – Albert Einstein
    As long as the United States continues to allow China to manipulate the U.S. Dollar and therefore manipulate our trade with ALL our trading partners:
    - our balance of trade with ALL our trading partners will be worse than it would otherwise be.
    - free trade agreements will work to our disadvantage and we should halt entering into new ones.
    Mark Twain is credited with an early use of the cliché “more than one way to skin a cat” in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports to China. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
    In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

  • Twofish

    Mining is extremely political since the state exercises a lot of control of natural resources.
    For a lot of fields, government policy is pretty much to squeeze as much technology as possible from foreign businesses for use to develop domestic industries. As long as you realize that this is the goal, you can make a lot of money from this, but if you have a business model that this doesn’t work with, then you are going to have a hard time.

  • Nigel C.

    So all those billions of dollars of foreign investment, geologists surveying the land and JV’s have all got it wrong then?

  • Anonymous

    Re “Good for them”: …”not so dumb after all”? Who ever said Chinese were dumb? On the contrary, the Charlie Chan films vividly portrayed intelligence as a proverbial characteristic, but no one watches those films now because our censors have declared them politically incorrect. The phrase “devilishly clever” also used to be said of Chinese, presumably introduced by missionaries in an earlier generation, but is now thought unduly condescending.
    Speaking as someone who used to work in China for a foreign company as interpreter and could understand a lot of what the other foreigners couldn’t understand, it was clear to me after only six months that the system is rigged pretty much as reported by the mining industry veteran. My company also made a huge investment, gave away a lot of technology, then got shown the door with a paltry payout for airfare. Why would outsiders call a veteran insider’s judgment into question?