China's Mining Industry At Home And Overseas: Development, Impacts And .

07mining operations and processing plants in order toboost local economic growth, but have failed to takeinto consideration other environmental and socialfactors. Mining in China has also become infamousfor its poor safety record, and while mine safety isimproving, serious accidents leading to death andinjury continue to make headlines.,U]PYVUTLU[HS 9LN\SH[PVU PU *OPUH! ( VYR PU 7YVNYLZZMany of the concerns highlighted above havebeen acknowledged by the Chinese Government.Measures have been taken to improve safety inChinese mines, and in recent years the ChineseGovernment has also made commitments to builda more ecologically-friendly society, with aims tocut carbon emissions caused by energy-intensiveindustries. Steps have been taken to close small andoutdated mining projects or consolidate them withlarger companies in an attempt to improve safetystandards, environmental compliance and reduceover-production. In addition to the laws covering minelicensing, production standards and health and safety,there are also laws and regulations covering pollutiondischarge and emissions, and requirements thatenvironmental impact assessments be conductedprior to project approval and development.Financiers are subject to environmental guidelinesdeveloped by the China Banking RegulatoryCommission (CBRC) which encourage China’s banksto promote “green” lending, support the growth ofa green economy, and improve management ofenvironmental and social risks. Some Chinese bankshave also adopted internal policies for lending to highpolluting industries and for assessing environmentaland social risks of potential investments. Miningcompanies listed on the Shanghai Stock Exchange(SSE) and Shenzhen Stock Exchange (SZSE) aresubject to disclosure regulations and guidelines, andboth exchanges have issued guidelines on corporatesocial responsibility (CSR) reporting. It is encouragingto see collaboration between the Ministry ofEnvironmental Protection (MEP) and financialregulators on green credit and securities policies.This highlights the joint responsibility that enterprises,financiers, regulators and policy makers share inworking towards a more sustainable developmentmodel and improving management of the social andenvironmental impacts associated with high-riskindustries such as mining.While China’s regulatory framework has developedsignificantly in recent years, gaps still remain, and ithas become clear that stronger and more detailedmechanisms need to be adopted in order to protectChina’s environment and sustainably manage theutilization of the country’s resources. Althoughsignificant improvements have been made minesafety, and greater attention is being paid to theenvironmental and social impacts of mining, there isstill much progress to be made, and strong regulationis a key element in improving the management andexploitation of China’s mineral resources.Even after legal and regulatory reforms take place,a major challenge that remains is ensuring thatlaws and regulations are implemented. A crucialproblem within China is that the costs associatedwith breaking the law are sometimes lower than thecosts of following the law. For example, paying finesmay be cheaper than conducting high-quality andtimely environmental impact assessments, paying forexpensive waste treatment facilities, or installing andusing emissions reduction technology. Amendments

08*OPUH»Z 4PUPUN 0UK\Z[Y H[ /VTL HUK 6]LYZLHZ! L]LSVWTLU[ 0TWHJ[Z HUK 9LN\SH[PVU Executive Summaryto the Environmental Protection Law aim to counterthis problem by including stricter penalties forviolations.An on-going concern is the disconnect betweennational and local level authorities, as incentives forlocal governments to deliver strong growth figuresoften eclipse concern for environmental protection.This is an issue that will need to be addressed in orderto ensure that improved laws and regulations arefully implemented. As China continues to develop itslegal and regulatory framework, cooperation betweenthe various authorities needs to continue to develop,and the gap between regulation and implementationreduced. As progress is made in these areas, thereis also scope for China to work more diligently toaddress social and environmental impacts related tooverseas projects, and to continue the developmentof appropriate standards for application beyond itsborders.*OPUH»Z 6]LYZLHZ 4PUPUN 0UK\Z[Y A large number of Chinese mining companies arealso investing in overseas mining projects. This issupported by China’s “going out” strategy, throughwhich companies are encouraged to move intooverseas markets. China’s overseas investment in allsectors has risen rapidly since 2004, reaching overUS 107 billion in 2013. Chinese mining companiesare now active across the world, with investmentsin a diverse range of countries, including developed,middle-income, and developing economies. Chinesemining companies are going out for various reasons,for example: to secure mineral resources that arescarce in China, to gain access to global markets andmineral supply chains, and to reduce over-productionof certain mineral commodities at home.In terms of both outbound direct investment (ODI)flows and accumulated ODI stock, mining hasbeen one of the most important industries forChinese outbound investment, ranking in the topfour overseas industries since China’s Ministry ofCommerce (MOFCOM) began publishing statisticsin 2004. Chinese mining companies employ variousstrategies to pursue overseas projects, and thesestrategies are constantly evolving. Historically, stateowned enterprises dominated overseas mininginvestment, but private companies now play anincreasingly significant role. Investors are usingvarious vehicles, including wholly-owned subsidiariesand joint-ventures. Joint-ventures may involve twoor more Chinese companies, private or state-ownedenterprises from the host country, internationalmining companies, or a combination. Some projectsare greenfield investments, whereas others involveacquiring equity in existing projects. With manyestablished western companies falling on hard timesduring the financial crisis, a number of Chineseenterprises have stepped in and acquired significantmining interests in well-established internationalmining companies.There are many potentially positive outcomes ofChina’s investments in overseas mining. The largeinjections of capital associated with mining canstimulate industry and contribute to the developmentof much needed infrastructure in developingcountries. Mining can create local employment andincrease incomes around mine areas, and contributeto the development of downstream industries. Atthe national level mining can contribute to GDPgrowth and an increase in exports. However, in anumber of cases Chinese overseas mining projectshave also been associated with negative socialand environmental impacts. This includes casesof environmental pollution, resettlement problems,and conflicts with local people. These issues canbe exacerbated by poor communication withaffected people and low levels of transparency –two weaknesses that are often attributed to Chineseinvestors.In some cases Chinese investors may lackawareness of local situations or be inexperiencedin communicating with local people. In other casesthey may simply lack responsibility or utilize unethical

09business practices. It is also possible that someproblems are caused by local factors that werenot envisioned by investors, or which are beyondtheir control. Regardless, improved regulations andguidelines for outbound investors can help ensurethe rights and interests of local people are respected,improve protection for the environment, and help tobuild company reputations. At the very core of thechallenges highlighted here is the need for Chineseenterprises to build and develop a more responsiblecorporate culture.Domestically, China still needs to improve standardsin its own mining industry, ensuring that environmentalstandards are raised, safety improved, and thatthe industry in general is regulated more effectively.At the same time, progress needs to be made indeveloping “green lending” standards in China’sfinance sector. With much progress still to be made athome, it is important that Chinese companies activeoverseas not only invest capital, but also supportmutually beneficial development, contribute to localeconomies, and avoid bringing in poor practices. Oneway that this can be realized is through the adoptionof strong and binding regulations for overseasinvestment, and adoption of best practice by Chineseenterprises.*OPUH»Z :HMLN\HYKZ MVY 6]LYZLHZ 0U]LZ[TLU[ *VU[PU\L [V L]LSVWWhen investing overseas, Chinese companies havetraditionally relied on host country regulations andpolicies to deal with issues such as environmentalprotection, resettlement and compensation.Additionally, strong relations with host governmentsoften tend to be prioritized over establishing goodconnections with local communities and civil societygroups. However, after a series of troubled projectsand negative publicity, the shortcomings of thisapproach have become apparent. The ChineseGovernment has acknowledged that standardsin overseas investment need to be improved, andstate institutions, regulatory bodies and a numberof financiers have made progress in recent yearsto adopt policies that seek to avoid or minimize theadverse impacts of overseas projects.In recent years, bodies including the State Council,MOFCOM, MEP, CBRC, and China’s policy bankshave passed dozens of policy documents relatedto various aspects of overseas investment. Mostrecently this includes the MOFCOM/MEP Guidelinesfor Environmental Protection in Foreign Investmentsand Cooperation and CBRC’s Green CreditGuidelines. A draft guideline on social responsibilityin overseas mining operations is also currently underdevelopment by the China Chamber of Commerceof Minerals, Metals and Chemicals Importers andExporters (CCCMC). The quality of these policiescontinues to develop, but significant challengesremain in ensuring that they are implemented.However, most of these policies are not mandatoryand lack grievance mechanisms for people tochallenge alleged non-compliance. It is likely thatthere is limited awareness of these guidelines in hostcountries, and in the absence of a body responsiblefor monitoring their implementation, it will be difficultto compel companies to follow the policies in full.The development of guidelines related to Chineseoverseas investment and financing show promise,and have created a foundation for the developmentof a more comprehensive system of environmental,social and governance policies. However, thereis still much work to be done. As China becomesincreasingly integrated into the global investmentlandscape, adopting voluntary finance guidelinessuch as the Equator Principles and supportingtransparency initiatives such as Extractive IndustriesTransparency Initiative (EITI) could help Chineseinvestors to ensure that overseas projects aremore sustainable and that benefits are sharedmore equitably. A number of institutions, such asthe International Finance Corporation (IFC) andthe Organization of Economic Co-operation andDevelopment (OECD) already have strong policiesand guidelines in place, some specifically related to

10*OPUH»Z 4PUPUN 0UK\Z[Y H[ /VTL HUK 6]LYZLHZ! L]LSVWTLU[ 0TWHJ[Z HUK 9LN\SH[PVU Executive Summarymining and minerals. These policies have been triedand tested over a number of years and the lessonslearned here can inform the development of strongerpolicies for China’s overseas investment.So far only a handful of Chinese companies andbanks have adopted best practice frameworks suchas OECD guidelines or EITI. However, CBRC’s GreenCredit Guidelines, the MOFCOM/MEP Guidelinesfor Environmental Protection in Foreign Investmentsand Cooperation, and China Exim Bank’s Guidelinesfor Environmental and Social Impact Assessmentsall state that lessons should be learned frominternational best practice. CCCMC's draft guidelinesfor overseas mining explicitly references several keyinternational standards, including the ISO 26000Guidance on Social Responsibility, the UN GlobalCompact, Equator Principles, EITI and the UN’sGuiding Principles on Business and Human Rights.Implementing these standards can help to ensureChinese investments do not cause harm to peopleor the environment in host countries, but it is alsoin the best interests of investors to learn from andwork towards adopting best practices in the mineralsector. Raising standards can help to improve publicperceptions of Chinese investment, which in turn canfacilitate smoother investments and reduce the risk ofconflict and project failure.*HZL :[\KPLZ! ;OL P]LYZL (WWYVHJO VM *OPULZL 4PUPUN *VTWHUPLZThis report is accompanied by a case studiessupplement which provides examples of four diversemining projects implemented by Chinese miningcompanies in China, Peru, Laos, and Cambodia.These case studies involve the companies ZijinMining Group, MMG Limited, China Railway Group,and Cambodia Iron and Steel Mining Industry Group.The cases illustrate the varied approaches adoptedby Chinese mining companies when investing inChina and around the world. Each case looks at thecompany background (and the background of theparent company where applicable), its commitmentsto corporate social responsibility and other relevantpolicies. The case studies then examine specificmining projects in more detail, looking at bothpotential and actual benefits, impacts, and lessonsthat may have relevance to other Chinese mininginvestments. For more detail on the case studies,readers are encouraged to refer to the supplement tothis report.*VUJS\ZPVUZWhile China has benefitted considerably from itsdomestic mining industry, the country is also havingto deal with the heavy pollution caused by energyand resources intensive industries. As China’smining industry has developed, so have regulatoryframeworks. Over the last 20 years a large body ofenvironmental regulations have also been adopted,many of which are relevant to the mining sector.However, implementation remains a major challenge.This must be addressed as a matter of urgency,and as China’s laws and regulations continue todevelop, so must the effectiveness of enforcementmechanisms.Mining continues to be a major focus for Chineseoverseas investment, with Chinese companiesactive across the globe in countries with variouseconomic, political and geographical characteristics.As is the case within China, overseas mininginvestments can bring potentially huge benefits tohost nations, however, a considerable number ofoverseas investments in the sector have encounteredchallenges or have been connected to adverseimpacts. Against this backdrop, China is workingto develop guidelines and policies for overseasinvestment and financing. There are still no bindingsocial or environmental safeguards, althoughseveral guidelines have now been developed. Theseguidelines have created a strong basis for furtherimprovements in overseas investment policies, butwork must now be done to implement and build onthese standards.

11Phosphate Mining in Sichuan Province, 2013( Ma Dong / Greenpeace)The most detailed guidelines currently in placeconcerning safeguards in China’s overseas investmentand finance are the MEP/MOFCOM Guidelines forEnvironmental Protection in Foreign Investment andCooperation and CBRC’s Green Credit Guidelines.Both were passed fairly recently and it is thereforetoo early to assess their impact. However, there are anumber of measures that could be taken in order toensure that the guidelines have the maximum impact,including: dissemination, integration of the guidelinesinto project approval and evaluation processes,increasing accountability through publication ofproject information and documentation, and workingtowards developing enforcement and grievancemechanisms.No matter where in the world Chinese companiesinvest, they must follow local laws and regulations.However, in some cases, host countries mayhave undeveloped mining industries and/or weakenvironmental regulation. In such cases, Chinesemining companies should take the initiative toimplement higher standards. China now has manydecades of experience developing its mineralresource sector, and therefore has abundantexperiences, both positive and negative, to draw on.Although implementation of environmental regulationstill needs to be improved within China, the relativelydeveloped nature of domestic environmentalregulations could be used as a minimum standardfor companies going out. In the long term, Chineseinvestors need to work towards developing policesequivalent to best international practice. A wealth ofguidelines and frameworks are currently available,including those of the OECD, World Bank, IFC, andinitiatives such as EITI, the Equator Principles andthe Global Compact, all of which can inform thisprocess.

12*OPUH»Z 4PUPUN 0UK\Z[Y H[ /VTL HUK 6]LYZLHZ! L]LSVWTLU[ 0TWHJ[Z HUK 9LN\SH[PVU Executive SummaryAs China enters a new stage in its development andenvironmental awareness increases, it is importantthat difficult issues such as those raised in this reportare dealt with. This is not only important withinChina, but is also important for China’s reputationas a global actor with an increasingly important roleto play in international governance and sustainabledevelopment. In the coming years, this role is likelyto continue to grow. As a major player in globalinvestment, finance and trade, China is in a uniqueposition to provide a model for other emergingeconomies seeking to develop overseas investmentopportunities. At the same time, as China improvesthe standards and practices applied in overseasinvestment and companies and financiers movecloser towards applying international best practices,there is the potential for positive experiences to bebrought back home to China. If this does occur,it will help to improve the standards of domesticinvestment, increase sustainability, and contribute toChina’s green transition.Much of the discussion in this report has focussed onthe laws, regulations and policies that are currentlyin place to regulate the social and environmentalimpacts of China’s domestic and overseas miningindustry. However, it is not just policy that needs tochange. The mindset and awareness of Chineseenterprises also needs to develop, and investors andfinanciers need to understand more clearly how theirprojects impact on local people and the environment.While policy makers and regulatory bodies candevelop enhanced social and environmentalsafeguards for domestic and overseas investment,those responsible for developing and financingprojects also need to understand that generatingrevenue and creating jobs is not the only priority. Inorder to achieve the admirable goals of “win-win”development and “mutual benefit”, investment anddevelopment must be conducted in a responsiblemanner, with negative impacts mitigated to thegreatest extent possible. This is crucial if China is tobe successful in its mission to build the “ecologicalsociety”.

13Phosphate mine in Longmen Mountain, Sichuan Province, 2013( Yong Yang / Greenpeace)

14*OPUH»Z 4PUPUN 0UK\Z[Y H[ /VTL HUK 6]LYZLHZ! L]LSVWTLU[ 0TWHJ[Z HUK 9LN\SH[PVU Introduction to the ResearchIntroduction to the ResearchAs a Chinese NGO dedicated to environmentalprotection, Greenovation Hub (G:HUB) has conductedthis research in order to contribute to the on-goingdiscussions regard

Table 4: Chinese mining companies with the largest overseas assets, 2012 Table 5: Transparency International - Transparency scores for Chinese mining companies Table 6: Updated approval and filing requirements for overseas investment Table 7: Summary of major instututions involved in regulation of Chinese overseas investment