#10 in a series on THE FUTURE OF TIBET

No longer does the Chinese state claim all rights and benefits. Now there are counterparties, in complex rolling transactions enabling mining rights to be bought, sold and onsold, as in those market societies where freehold property rights exist. The key is to create a separate class of usufructuary rights. This means a right to derive a benefit from a common pool resource which, in theory, always remains state property even as it is hauled away to the crusher or smelter. In this new regime, the Ministry of Land & Resources depicts itself as the impartial umpire, impartially regulating the market so as to prevent undue speculation and ensure fairness. The Ministry says: “Transfer of mining rights involves not only the assignor, and assignee, but also involves the owner – the state and the interests of other parties, so we must standardize rules in order to strengthen supervision, operating transparently. There is a need to restrain speculation, to avoid or reduce disputes and safeguard the legitimate rights and interests of the mining rights of people to claim a mining right transfer.”

Further openings to new players were announced mid-2012, at the same time that the Hong Kong Stock Exchange paid a high premium to obtain ownership of the London Metals Exchange (LME), enabling much more speculation on price movements of metals in China. LME has long been the major global gateway through which minerals, and gambles on future mineral prices are bought, sold, hedged and manipulated. That is why Hong Kong was willing to pay an extraordinary amount to take ownership of LME.

More and more players were crowding in, as the prolonged metals supercycle offered so many opportunities to make money without having to actually dig anything out of the ground. The new Chinese regulations ostensibly regularise property rights of stakeholders, including those who trade, not only in physical metal but also in mining rights. The absence of a transparent regulatory regime has not discouraged the entry of many new players already, including many official “bureaucratic entrepreneurs”, senior cadres  who use their power to grant or withhold official permissions to become effective stakeholders in enterprises they do not own.

“The Ministry of Land and Resources and the All-China Federation of Industry and Commerce issued guidelines on June 18, 2012, intended to encourage private investment in its resources sector, long dominated by state-owned companies. The guidelines cover a range of investment areas, including mining exploration. The guidelines also encouraged private capital to participate in geological exploration projects and said it has the preferential right to purchase the exploration rights. They also support private investment in exploration of mineral resources abroad.” (Lu Bingyang and Wang Yong,  Private Investment in Natural Resource Sector Encouraged, Caixin, 20 June 2012)

Does this mean privately owned Chinese corporations will now seek to invest in mineral extraction projects that are still majority-owned by state owned corporations. Unlikely, given the huge upfront capital expenditures and long wait for profits. More probably, this regularises and legalises the existing opportunities for upper management in state owned corporations to extract rent for themselves by forming subsidiaries taking stakes in profitable ventures, whether in existing mines, or in the trading of mining rights or metals futures.

In reality the party-state is not a disinterested or impartial regulator but a major stakeholder, its agents highly motivated to extract private rents for themselves, from all other players. China’s rejection of “western” definitions of corruption as inappropriate or inapplicable to China, or a new manifestation of cultural imperialism, sometimes makes outsiders hesitant to criticise. But Tibetans routinely see the outcomes of favouritism and cronyism among Han Chinese who have connections, knowing that, even in their own land, Tibetans lack the right connections and are defined as the outsiders.

Corruption is hotly debated in China. In 2012 a party newspaper, Global Times, editorialised that corruption is ineradicable, and what matters is to keep it at a bearable level. This horrified the privately owned Caixin: “How did an officially sanctioned paper with a wide readership come to the absurd conclusion that corruption should be tolerated? What’s the editorial really saying? These views unwittingly exposed the thinking of some interest groups. First, that corruption is a minor evil compared with reform and democratic development. Second, graft is the result of inadequate development and can only be reduced through more growth. Third, the public should be more tolerant of corruption. This is twisted logic. It is true that no country is free of corruption. Nevertheless, it is a politician’s top priority to fight it. And since absolute power corrupts absolutely, the key to curbing graft is limiting power. This requires the comprehensive reform of the political system and the institutionalization of democratic supervision”.There is an irony in a party newspaper urging acceptance of a level of corruption, and a private newspaper campaigning vigorously against it.

The 2012 trial of open trading in mining rights comes on top of allowing metals manufacturers to bet on the global prices of metals. China’s global miners are allowed to take long or short positions on future metals prices, to hedge against sharp price fluctuations. Ostensibly this reduces risk, and carries few risks for companies able to back their bets with a capacity to deliver actual metals if required by such contracts. It even enables metals companies to make money when prices fall, as well as the obvious opportunities open to them to profit from price rises. Betting on a fall –taking a short position- can come  badly unstuck, as Chinese metals traders found, to their cost, more than once. In 2012 China’s biggest copper producer, Jiangxi Copper bet heavily on a continued fall in copper prices, and was wrong. The blame was directed at the bad boys of global financial capitalism: “Some analysts say Jiangxi and other Chinese companies have found themselves caught in a trap set by western trading houses such as the Swiss powerhouse Glencore International Plc, the world’s largest copper merchant by volume. One futures trader said Glencore is “hoarding copper and manipulating stock levels by registering or canceling tonnages at will.””

This episode repeated a more embarrassing gamble that went wrong, in an earlier stage of China’s “going out” into the global commodities futures trading markets. But China has also learned to stockpile valuable metals when global prices are low, a time when countercyclical players with the deep pockets of a state can take advantage of a downturn.





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