Chinese companies invest in overseas mining appear new trends

According to the data from the China Mining Association, there were 284 overseas mining investment projects by Chinese companies in 2011, an increase from 175 in 2010. China’s agreement has an investment of US$22.6 billion and involves 215 investors. According to data from Thomson Reuters, China’s foreign investment in metal and minerals reached US$15.4 billion in 2011, second only to 2008, ranking second in history. As of the first six months of 2012, there were only 53 overseas mining investment projects by Chinese companies, with an investment of 3.6 billion yuan, both of which fell sharply year-on-year. All indications indicate that the pace of the "going out" of China's mining companies in the past two years is clearly slowing down.

Investment began to decelerate overseas. “In terms of the number of investment projects or the amount of investment, the first six months of 2012 compared with the same period in 2011, the rate of decline has been significant, and the pace of overseas mining investment by Chinese companies has been slowing.” China Mining Chen Xianda, vice president and secretary-general of the Federation, said at the “2012 Mining and Wealth (Beijing) Summit” held on June 20.

Chen Xianda told reporters that this is not related to the global economic slowdown, China's economic restructuring, and the market's expectation of rapid growth in mineral consumption.

In the context of the slowdown in GDP growth in the first quarter, the prices of mineral products such as iron ore, copper concentrates, and bauxite in the international commodity market are all in a downward aisle, and in particular, there have been 10 million tons of iron since May this year. The backlog of ore in China's ports has caused many companies to dare not invest blindly.

As of the end of 2010, there have been thousands of mineral projects invested by Chinese companies overseas, and they have been distributed in 80 countries and regions, involving many investment entities, and the total investment has exceeded 200 billion U.S. dollars.

Another fact that should not be overlooked is the resurgence of resource nationalism in the world, the increasingly rigorous examination of foreign resource projects, the endless high taxes and fees for resource companies, and the game between environmental NGOs and trade unions... A large number of Chinese-funded enterprises are puzzled.

Recently, many countries have successively raised tariffs or restricted the export of mineral resources. Although the starting point for raising taxes varies from country to country, this has become a trend. India, Vietnam, and Indonesia have successively raised iron ore export tariffs, indicating that these countries are increasing their protection of mineral resources in China, which means that Chinese companies are increasingly facing difficulties in obtaining iron ore resources in these countries. Once South Africa, Canada, Russia, Thailand, and the Philippines have joined the ranks of raising iron ore export tariffs, Chinese steel companies will find it increasingly difficult to find overseas mines. With countries such as India, Vietnam, and Indonesia raising export tariffs on iron ore, countries such as Brazil, Canada, and South Africa also reported news of the introduction of mineral taxes.

However, China has become the world's largest consumer of mineral products. Copper, iron, aluminum and other resources are more than 50% dependent on imports, and hundreds of billions of yuan in minerals are imported each year. According to Chen Xianda, China's mining overseas investment is still a general trend in the long run.

Changes in the investment body Although the overall growth trend has slowed down, the capital channels that have entered the mining industry have not decreased. Chen Xianda said that capital outside the mining industry, such as international trade, manufacturing, and other traditional industries, capital is competing to enter the mining industry overseas investment, diversified investment into a trend. Among them, private enterprises play a major role. In this view, Jin Jianhua, managing director of CITIC Securities Co., Ltd., also holds the same view. He also stated that as the number of pre-risk projects increases, the proportion of geological exploration units participating in foreign investment will increase.

Despite the active international mineral trading market in recent years, Minmetals, China Nonferrous Metals, China Aluminum, China Railway Resources and other state-owned enterprises have performed well in overseas large-scale mineral energy investment. However, in terms of the number of “going out”, private enterprises In fact, it accounts for an absolute majority and currently accounts for nearly 90% of the total.

The "Analysis Report on the Development Situation of China's Private Economy" published by the All-China Federation of Industry and Commerce in 2010-2011 last year shows that in the face of increasingly fierce market competition and the unprecedented impact of the international financial crisis, Chinese private enterprises have made full use of the state's series of encouragement companies to "walk". "Outgoing" preferential policies, actively enter the international market, through the acquisition of overseas energy mineral resources to meet the domestic demand for sustained growth of energy resources.

According to Sun Xiaohua, former Vice President of the All-China Federation of Industry and Commerce, compared with multinational corporations in developed countries and state-owned enterprises in China, private enterprises have unique advantages in investing in overseas energy mineral resources.

First, private enterprises have a comparative cost advantage. Private enterprises have a simple structure, flexible operation, and rapid adaptability, and they have lower management costs. Second, private enterprises have the advantage of operating mechanisms. Private enterprises have gathered a large number of entrepreneurs who dare to challenge, are brave to innovate, and who are capable of pioneering. They have independent decision-making power in corporate strategy, investment decision-making, operation and employment system, and can quickly transmit and process market information. Third, private enterprises have the advantage of folk colors. Although its overall size is not large enough and its strength is not strong enough, its folk colors make these companies more likely to be accepted by the host country in the process of “going out”. In the process of implementing overseas energy and mineral resources mergers and acquisitions, private enterprises are more likely to obtain the trust of the sellers of the companies and the authorities of the host country’s government, and overseas investment projects are less subject to political barriers. Therefore, Sun Xiaohua suggested that the government support the overseas mergers and acquisitions of private enterprises more powerfully, and use the unique advantages of private enterprises in overseas mergers and acquisitions to serve the national strategy.

Unlike state-owned enterprises in Canada and Australia, the majority of privately-owned companies invest in minerals overseas are preferred to Africa and South America. According to the data from the China Mining Association, Africa has become one of the major destinations for overseas mining investment by Chinese companies. In 2011, China’s total investment in mining in Africa was US$15.1 billion, an increase of about 10 times year-on-year.

Transfer of Investment Zones "Africa has become one of the major destinations for overseas mining investment by Chinese companies. In 2011, the total investment in China's African mining industry was $1.55 billion, an increase of about 10 times year-on-year," said Chen Xianda.

Chen Xianda also stated that the rapid growth of mining investment by Chinese companies in Africa in 2011 was mainly driven by the successful investment in several large projects. Last year, China’s investment in Africa’s mining investment amounted to more than US$100 million in seven projects, and the cumulative investment amount of seven projects was US$14.7 billion, accounting for 97% of China’s total mining investment in Africa that year.

During the year, China’s total mining investment in Latin America was US$2.2 billion, a year-on-year increase of 68%, and the average project investment amount was US$160 million, an increase of 50% year-on-year.

According to a survey conducted by the China Mining Association, with the increase in Australian mining investment risks and difficulties, especially the changes in Australia’s mining tax policy, Chinese companies’ investment in the Australian mining industry has rapidly declined. In 2011, China’s total mining investment in Australia dropped to US$1.3 billion in the same period of last year. In the first half of this year, China’s total investment in Australian mining industry was only US$140 million.

Due to export restrictions, coupled with relatively weak risk exploration and geological work, the recent investment in Asia has also been reduced, said Chen Xianda.

As the pace of Chinese companies going abroad is gradually accelerating, China’s foreign investment will be more cautious, and Chinese companies are also looking forward to further improvement of the foreign investment environment.