It is 18 months since my book on mining in Tibet came out, over two years since I finished writing. What a lot has changed, in directions I did not foresee. Those changes mean a lot for the future of Tibet.

While writing Spoiling Tibet: China and Resource Nationalism on the Roof of the World, China’s insatiable demand for raw materials seemed inexorable, and forever escalating into a worldwide search to source just about any commodity you could think of. Not even the sharp global recession of 2008 dented China’s global demand for raw feedstocks of minerals, oil, gas, and many food crops. Just about the only commodity that couldn’t be shipped to China was water, but it too was (and is) in short supply in the industrial provinces and the major manufacturing cities.

Not surprisingly, Tibet loomed large in China’s plans for access to raw materials, especially minerals, electricity and water. That all of these would be exploited for lowland China’s industrial hubs seemed obvious. If anything, what needed explanation was why it was taking China so long to fully exploit the  massive Tibetan deposits of copper, gold, silver, molybdenum, lead, zinc, salt and other minerals; and dam all the rivers, both to export electricity to the coast, and divert the rivers to dry northern China.

Only two years ago China’s demand for every natural resource had run nonstop for a decade, a decade that had come to be known as the supercycle of high prices that just kept going up and up, seemingly immune from the usual boom and crash cycles that have always afflicted mining. Several analysts, confident that China still has far to go before it is as rich as those it aims to emulate, confidently predicted a new law of economics, in which demand and prices ever rise, and not fall back.

How things have changed. The supercycle was unusually long, but it did end. As we all know, just about any commodity, from oil and gas and coal to copper and almost any metal, is now at far lower prices, and look to stay that way for the foreseeable future. In part, this is because the wheels on China’s developmentalist state model are wobbling, and there is no longer any way this can be fixed, as in 2009, by pouring massive stimulus funding into the economy to build yet more railways, tollways, cities and megaprojects.

The collapse of prices for the raw inputs of manufacturing –economists call them producer goods- at first seemed just a blip. Sure, it was obvious China was producing much more steel than Chinese buyers wanted to buy; and provincial governments, protective of their local champion corporations, resisted Beijing’s demand that the bloated state-owned steel furnaces merge, which also meant closing the more polluting and least efficient ones. But few foresaw that the weakening of demand would ripple right through the economy, at a time when global demand for China’s manufactured stuff remains weak.

Many causes and conditions have ripened at once. Europe’s austerity-driven weakness has affected China’s export industries; likewise America’s gradual recovery. The willingness of the Saudis to keep pumping oil to the max, despite low prices, was a surprise, a long term gamble to drive out of business the newer players, such as American shale oil producers and the Russians, whose energy industries remain profitable only if prices stay high.

But what the Saudis did, other big players have now done, in other key raw resource industries. Iron ore, the primary ingredient of steel making, is dominated by a few giant global corporations who made a similar calculation to the Saudis, that they could remain profitable even on low iron ore prices, while newer entrants to the global iron ore traffic, with loan finance to service, had higher costs, and would be driven out. We are in a different world, where the powerful are willing to endure a period of pain to maintain their oligopolies.

Is China an onlooker in all this? Not so. China has been playing the same game, in which there are only two options: get big or get out. China took full advantage of its near-monopoly in production of rare earths, a range of elemental metals that have innumerable high-tech uses. China worked especially hard to dominate the global market in manufacturing aluminium, building huge smelters dependant on massive amounts of electricity, usually provided by coal-fired power stations. In recent years, as coastal city citizens get fed up with smelter pollution, the new smelters are being built far inland, in Xinjiang, which also makes a troubled frontier region more Chinese, with more employment for standard Chinese speaking industrial workers.

China has taken advantage of low prices to increase its stockpiles of strategic metals, enabling smart warehouse managers to use the assets under their management as leverage to finance access to capital, sometimes using the same piled ingots over and over as collateral on multiple loans. Many have benefited from the collapse of the supercycle, and the end of the mining boom.

But in the longer term, the Chinese model is in trouble. There is too much hot money, concentrated in real estate, often money creamed off from urgent stimulus spending that was meant to build productive infrastructure. There is too much bad debt, to be rolled over and over in the hope that eventually, as the next up cycle ramps up, it will pay itself off out of new profits. Maybe.

China is no longer the lowest cost factory, with the cheapest labour. China is now a middle income country. Manufacturers are shifting to Vietnam, Cambodia, Bangladesh and of course, far inland to Xinjiang and the foot of the Tibetan Plateau, in Sichuan and Chongqing. That move was gathering momentum as I wrote the mining book, and has gathered pace. I predicted that this would increase demand for the minerals, water and hydroelectricity of Tibet, because it makes little sense to buy minerals from overseas and then get them far inland, largely because the grand vision of the Three Gorges Dam as a new inland waterway for big ships, as far in as Chongqing, never worked and probably never will. So the global brands that now manufacture their high tech in Chengdu and Chongqing will increasingly need Tibet as a source of raw materials. That part of my argument may yet turn out to be true, but it is taking time.

A major reason for my counter-intuitive argument, in the 2013 book, that Tibet is not yet spoiled, was that the mining and damming are exclusively done by state-owned corporations that are restricted in how much profit they can make, by their party-state owner, which deliberately discriminates in favour of manufacturers, and uses its political power to hold down the prices of raw materials, water and electricity. That is still so today. Large scale exploitation of Tibet seems imminent, but it has seemed imminent for as long as China’s central planners have announced mining Tibet as a “pillar industry”, which is decades.


That’s the backstory. Then along came Xi Jinping.

Xi’s extraordinary centralisation of power came with announcements that private enterprise would be allowed to play the “decisive” role in the economy, and that rigid price controls on water, electricity and minerals would be relaxed. There would be reforms of the state-owned enterprises, a crackdown on corruption and the “China Dream” would materialise.

Much of this came to pass, and much is turning out to be not at all what was expected. The corruption crackdown has exposed the oil, gas and minerals industries as major corruption opportunities, including in Qinghai (Amdo in Tibetan) where the Western Mining Corporation, which was involved in almost every major mine in Tibet, became a special focus of the party’s corruption inspections.

But the relaxation of commodity price controls is moving slowly, and there is less sign than ever of private corporations playing a decisive role. In March 2015 came an announcement that took everyone by surprise: far from downsizing the state-owned corporations (SOEs), they are to be upsized, by a state-driven policy of mergers and acquisitions, to become even bigger. This is what economists call agglomeration, an unlovely word that means what it says.

Not so long ago, when reformist premier Zhu Rongji was inclined to listen to the World Bank and neoliberal orthodoxy, the SOEs were trimmed, downsized, demerged, forced to compete with each other. It began to look like China might follow the prescribed path of market economics.

That is now decisively over.  Once again, in today’s world, big is better, biggest is best. China is determined to be globally competitive, notably in what it sells to the world, but also in what it buys. The agglomerations are initially concentrated in industries where China can sell its heavy manufactures, such as railway construction and nuclear power stations. Shipbuilding is another industry due for a shotgun wedding, and maybe even the oil industry, which has for decades extracted two million tons a year of Tibetan oil from Amdo Tsaidam.

For Tibet, it’s a mixed picture, at least in the short term. So far, there has been no announcement of compulsory state-driven mergers in the mineral extraction industry, or in the hydroelectric dam builders who jointly dominate the new economy of the Tibetan Plateau. Competition may be narrowing, behemoths building.  Will the dam builders, all state-owned, also be agglomerated? If export competitiveness is to be the trigger for industry consolidation, they do qualify, as dam building expertise, hard won in the steep valleys of Tibet, is a highly exportable capability.

The logic of this new policy of agglomeration is to make China more competitive in foreign markets. For China, operating in Tibet is very much like operating in a foreign market: the distances are great, infrastructure is not there, supply lines are long, markets are far away, everything is different. The SOE mineral extraction corporations, and hydropower SOEs are already used to operating worldwide, and, in the boardroom, the real world decision is whether the next copper mine will be in Peru or Congo or Tibet.

Xi Jinping’s centralisation of power, agglomeration of SOEs and (so far) reluctance to allow the metals and water extractors the freedom to set prices, add up to a centralisation of exploitation of Tibet. Xi’s regime is clearly out to do what it takes to revitalise the profitability and export success of China’s manufacturers. If that means bigger and more powerful SOEs, that is a familiar formula, that takes us back to the 1970s and 1980s. If bigger profits for the world’s factory, now relocating to Chongqing and Chengdu, also mean suppressing prices of the raw materials Tibet provides, so be it.

Official control over the price miners and  electricity generators can charge for what they produce may lead the big SOEs in these sectors to look for better places than Tibet for their capital. Yet it is part of the new official policy that newly agglomerated SOEs must become more profitable, and hand over a bigger proportion of those profits to the central government, which, in turn, keeps the centre supplied with the fiscal means to invest in more infrastructure in Tibet.

So in the immediate future, the SOE mining companies have few prospects for making much money from exploiting Tibet, but as demand picks up, and agglomeration grows, they will be in a stronger position, especially if, as is the case at the Shetongmon copper  and gold mine near Shigatse, the SOE mine owner is itself a major smelter company, eligible for much official favouritism.

This may mean the exploitation of Tibet will continue to intensify, as predicted in Spoiling Tibet in 2013. It also means the electricity producers, miners and dam builders will have to put up with slender margins, an incentive for them to ignore frivolous expenses such as compliance with environmental laws, or worker health and safety.

The Saudi oil producers, the Brazilian and Australian iron ore miners, the coal diggers all remain confident that China, even if it slows, will still need their raw materials, in huge quantities, for a long time to come, to make manifest the China Dream of a city apartment for all.

This period of low prices, low profits and suppressed environmental compliance will end, and we will be back to the world of Spoiling Tibet, a world where demand once more exceeds supply. By the time the next cycle kicks in, incentivising the SOEs to accelerate extraction from Tibet, China and the world will be dominated even more than now by the biggest of multinational corporations, and China will have its national champion SOEs in the big league.

All of the above affects the big state owned corporations that, with high visibility, and maximum propaganda coverage, build and extract on a big scale. Almost none of the above affects the smaller mining companies proliferating all over Tibet, who have a single, simple agenda: to make as much money, as fast as possible, ripping out of the ground as much stuff as they can, with no heed for environmental consequences or impact on nearby Tibetan communities. Because they operate outside the gaze of the state –usually because local governments are paid to look the other way- none of the above complex and contradictory agenda applies to them.  They  do not have to invest but keep profits low. They do not have to be concerned about occupational health and safety, or environmental impacts.

But if they are too successful in their singular pursuit of profit, they may become big enough to get caught up in the coming compulsory round of mergers. And they do, for the time being, have to accept prices that are lower than a few years ago. However, the primary attraction of resource exploitation, all over Tibet, remains gold. The price of gold does fluctuate, but not as sharply as other minerals.

The reason is simple. Eminent China-watcher David Shambaugh recently predicted: “The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think.” How did he reach this  conclusion?  “Consider five telling indications of the regime’s vulnerability and the party’s systemic weaknesses. First, China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble. In 2014, Shanghai’s Hurun Research Institute, which studies China’s wealthy, found that 64% of the “high net worth individuals” whom it polled—393 millionaires and billionaires—were either emigrating or planning to do so.  Meanwhile, Beijing is trying to extradite back to China a large number of alleged financial fugitives living abroad. When a country’s elites—many of them party members—flee in such large numbers, it is a telling sign of lack of confidence in the regime and the country’s future.”

The discreet fungibility and portability of gold is at the heart of this flight of capital. This is what drives mining in Tibet, much more than high level pronouncements of agglomerations.





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