Copper-coloured Mountain

MINERALS IN THE NEW CHINA MODEL: RULE OF LAW?

#6 in a series on THE FUTURE OF TIBET

 

Tibetans, in Tibet and in exile, frequently express dismay about mining. When one sees the damage done by immigrant, nonTibetan gold rush miners all over Tibet, it is not hard to see why mining causes such grief, and has become one of the longstanding sources of the frustration that causes Tibetans to burn themselves, in protest.

But now a new game is coming to Tibet: large-scale, capital-intensive mineral extraction by large corporations. While the alluvial gold rush stream wreckers were technically illegal; the new mines are highly official, highly visible, high in impact, and come with full protection of the party-state.

The game is changing. In the past, the concern was with local impacts and the prospect of foreign companies investing in Tibet. Now the biggest state owned mining companies in China are moving ever deeper into Tibet, raising tricky questions as to who owns, and who actually controls Tibet. As the big new  Tibet Autonomous Region copper and gold mines, at Gyama, Chulong, Shetongmon and Yulong, prepare for their 2013 operational upscaling, who actually owns the minerals, and who pays to get the highly valuable deposits of copper, gold and silver to Chinese industrial markets?

The answers, in a China where private and public property rights are entangled, is not as straightforward as people may think. Call it market socialism, or state capitalism, or simply “the China model”, whatever the name, Tibet is in for many surprises.

All land, and all minerals in China belong to the state. That was true once, but the situation is now more complex. The demand for private ownership is growing. The global boom in mineral prices which started in 2003, driven by Chinese demand, has transformed the question of who owns, and who profits, from the mineral wealth of Tibet.

In China, all minerals legally belong to the state, as in most modern nation-states. Legal ownership of underground wealth is one of the foundational claims of the nation-state, as basic to its power as is its’ assertion of sole legitimate right to use force.

Yet the nation-state bestows the right to extract minerals to those with capacity to do so, often in exchange for little. Although minerals are fundamental to wealth creation in an exchange economy, the state extracts as rental some taxes on mining enterprises and royalties on the actual tonnages removed.

In China, the parties to these contractual relations include not only the central government but also the local power; and not only privately owned mining companies but also state-owned. Most mining, especially when it is on a small or modest scale, has long been delegated to local governments, usually making deals with local miners for mutual accumulation of wealth.

It is only where mineral deposits are large, even world-scale, that the nation-state asserts control, and awards mining rights to large companies, which are almost always state-owned. The state is dealing with itself.

But state owned corporations gaining concessional access to state owned minerals in Tibet is quite new, beginning in the 1980s with chromite, now extending to copper deposits that are also rich in gold and silver. When one arm of the state deals with another, in a system that is intended to maximise industrial production, access to minerals, like access to state finance through state-owned banks, is on favourable terms. The mineral deposits are there to be mined, to prove state-owned metals manufacturers with raw materials at the lowest possible price. This is not so different to the revolutionary period between 1949 and the late 1970s, when the decision to mine was an internal matter for the supply branch of a central ministry charged with responsibility for providing producer goods, the drab term economists use for goods which never come into consumer markets, and are bought only by factories. To the central planners, the establishment of a mine was merely a technical decision about allocating sufficient supply to meet predetermined demand. The state was the owner, the supplier, the customer and the regulator. A team of Chinese scientists says: “In the planned economic era (1949-1978), the state artificially set low prices for minerals and other natural resources to support the manufacturing sector, which largely consisted of SOEs and was concentrated in resource-poor provinces.”Xiaobo Zhang and others, Resource abundance and regional development in China, Economics of Transition, 16, 2008, 7-29

However the state, at national level, visible to the wider world, has become involved with the mineral wealth of Tibet after China opened to the world and embraced the market economy. Until recently, the mining of Tibet, and the decision making, was done at local level. Because the national government was not involved, such activities were barely legible to the state, and did not enter into the statistics collected in annual statistical yearbooks.

The process of establishing actual national control over minerals meant overriding provincial, prefectural and county governments, even township authorities used to exercising effective control over mining, reliant on the rents that could be extracted from the mineral extractors. Regaining central control was slow and not always effective. The establishment of a legal regime recognisable to foreign investors, offering some degree of certainty, began in 1986 which China enacted a Mineral Resources Law. (W Zhang, Evolution and development orientation of property rights system of mineral resources in China, China Geology & Mining Economics [Zhongguo Dizhi Kuangchan Jingji] 1, 2000, 1-10)

The 1986 law was substantially amended ten years later. For the first time, China officially contemplated mining being done by entities other than itself. This meant wrestling with the rights and responsibilities of the primary contracting parties, the state and the miner, even if the miner was still in practice state-owned. At least, on paper, there was a clear definition of who does what.

This attempt at recentralising control came late. One of the architects of reform, Wei Tiejun of the Ministry of Land and Resources, notes that by that time “township collective mining enterprises and artisanal miners have sprung up everywhere.” (Wei Tiejun, On Reform of the Mineral Resources Law, PhD dissertation, China University of Geosciences, 2005) Drafting the 1986 law took seven years, because it cut across the fiefdoms of many ministries, all of which were involved in the arguments. The Ministry of Geology led the organization of the draft but had to involve the departments responsible separately for coal, oil, metallurgy, chemicals, nonferrous metals, nuclear engineering, building materials, light industry and other competent departments. There was a lengthy clash over the name of the law: was it to be the Mining Law, regulating the process of extraction, or, more foundationally, a Mineral Resources Law responsible for protecting resources in the ground, whether being mined or not?

The 1986 law failed to resolve these tensions, says Wei Tiejun, an insider involved in the negotiations. “Whether it is necessary, feasible, and by whom there will be law enforcement there is a fierce debate. The mine law from the beginning was an obvious compromise on the part of the system , due to historical limitations. The central provisions of the law failed to establish a property rights system of mineral resources.” In principle mineral ownership and use of minerals were separated, “but because the time conditions are not ripe, this idea could not be implemented. Due to drawbacks of mineral resources management and institutional fragmentation central departments have not been able to fundamentally solve the conflict. Rights and responsibilities has not been straightened out.” The turf war over who had day to day administrative control over implementing the law continued. The idea of property rights inhering in anyone but the state was too far a step for China in 1986 and even in 1996, when no-one could own land of any sort, not the peasants who were at least given long-term tenure certificates, and certainly not urban residents (until well into the 21st century).

It was not only locally controlled miners that had the initiative, local governments generally captured most tax revenue, leaving central leaders unable to assert national control. At the time the first national Natural Resources Law was being debated, central leaders were also planning how to recentralise control of the tax revenue gathering system, to make them less dependent on accepting a slice of what was collected at lower levels. The early 90s were a time of bringing the central state back in, laying the groundwork for today’s entrenched state capitalism.

Now China is moving towards giving property rights to mining companies. This is a story to be continued, in the hope that Tibetan communities impacted by increasingly big mines can know who they are dealing with, and what regulatory regime governs the miners.

 

 

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