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China Wary About Canada's Push in Resources Sector

"China Wary About Canada's Push in Resources Sector
Tuesday, January 18, 2005 9:24:13 PM ET
By Lucy Hornby

SHANGHAI (Reuters) - Canadian Prime Minister Paul Martin arrives in Beijing on Thursday hoping to open China's natural resources to Canadian firms, but he is likely to get a cautious hearing from Chinese officials reluctant to allow too many foreigners into a strategic sector.

China's rapid growth has left it starved for metals, energy and other natural resources, many of which are found in its underdeveloped western regions.

"I think there are two desires warring in officials' hearts. One is that China needs more resources and Western companies can help," said a Chinese manager with a foreign mining company.

"The other is a nationalistic concern that the foreigners are going to open our mines and take away all the money."

Many senior cadres were weaned on the communist ideologies of national self-sufficiency and state control of industries from gold to steel.

But because Chinese imports have boosted resources prices globally, thereby raising costs for Chinese industries, central government is increasingly open to foreign investment.

Late in 2004, Beijing pledged it would allow foreign miners greater access to base metal reserves, especially in remote regions.

"Reciprocity is the key issue for Canadian companies interested in exploration and development of resources in China," said Kevin Tsui, China general manager for the Canada China Business Council.

Canada's exports to China nearly doubled between 1999 and 2003 to 4.8 billion Canadian dollars ($3.94 billion), but still only account for 1 percent of Canada's total exports.

Canada supplies a third of China's nickel and wheat imports, a quarter of its barley imports, nearly all of its rapeseed imports and 3 percent of its copper concentrate imports.

Talks by China Minmetals Corp. to acquire Canada's Noranda Inc. have raised Canadian concerns about equal access to China's mines, wood-product processing and hydropower projects, Tsui said.

Chinese regulations requiring separate applications to explore for and then to develop mineral resources add considerably to risk, since companies cannot be sure they will be allowed to develop resources they have discovered.

OPENING UP

There are signs that China is slowly but surely opening up the mining sector, starting with gold.

Canada's TVI Pacific Co. Ltd. set up the first wholly foreign-owned mining firm in 2003 and is exploring a gold belt with associated zinc and lead deposits in Hunan province.

Australia's Sino Gold Ltd. moved one step closer to becoming the first foreign company to develop a new mine in China when it received a key permit this month from provincial authorities.

It expects a mining licence by April, but meanwhile will break ground on the Jinfeng gold project in Guizhou province, Sino Gold chief executive Jake Klein said on Monday.

"It was what I would describe as a beachhead in the foreign mining sector," Klein said.

"If anyone didn't want foreign mining, they would try to stop our project. But on the flip side it shows the ultimate robustness of the government process works," he said.

Sino Gold -- which already mines from a largely depleted project in Shaanxi province -- benefitted from regulations in mid-2004 that allow provincial authorities to approve smaller projects.

Bigger minerals mining projects could follow the path blazed by gold miners, the Chinese manager said.

"The government is going to want foreigners to develop remote or more difficult projects, not just the easy ones. They will want transfer of knowledge and technology to Chinese," he said.

"But the younger, more technical officials are more open to liberalisation and realising you need to offer good returns to attract a large investment project," he said. ($1=$1.22 Canadian)"


SOURCE LINK: http://www.metronews.ca/reuters_national.asp?id=51346