Development and Reform Commissions, Economic and Trade Commissions (Economic Commissions, Industrial Offices), Finance Departments (Bureaus), Land and Resources Departments (Bureaus), Commerce Authorities, the Shanghai Headquarters of the People's Bank of China, its branches, operational management departments, and central branches in provincial capital (or provincial-level) cities; the Guangdong Branch of the General Administration of Customs, the Tianjin Special Office, the Shanghai Special Office, and all directly affiliated customs offices; the State Administration of Taxation, the Environmental Protection Bureau, and the Safety Supervision Bureau:

To implement the spirit of the State Council’s “Decision on Issuing and Implementing the Provisional Regulations on Promoting Industrial Structure Adjustment” (Guofa [2005] No. 40), to standardize investment activities in the lead and zinc industry, and to accelerate the structural adjustment of the lead and zinc industry, the following guiding opinions are hereby put forward:

I. The Importance of Regulating Investment Activities in the Lead and Zinc Industry to Promote Structural Adjustment

Lead and zinc are essential raw materials closely linked to industrial development and people's daily lives. China's lead-zinc industry primarily consists of two major segments: lead-zinc mining and beneficiation, and smelting. As of the end of 2005, there were 411 large-scale mining and beneficiation enterprises nationwide, along with 466 lead-zinc smelting enterprises. By the end of 2005, the industry’s production capacity stood at approximately 2.2 million tons of crude lead, 2.8 million tons of electrolytic lead, and 3.4 million tons of zinc.

In recent years, the oxygen-blown smelting–blast furnace reduction process for lead smelting has been successfully implemented, and advanced Isa furnaces and Kaldo furnaces have been introduced. The fluidized-bed roasting process for zinc smelting has also been adopted, achieving high sulfur utilization rates and ensuring that tail gas emissions meet regulatory standards. Lead and zinc smelting enterprises have achieved remarkable results in the comprehensive utilization of resources, enabling the recovery of 13 rare and valuable metals, including gold and silver. Technological advancements have driven the upgrading of China’s lead and zinc smelting processes, and the time is ripe to phase out outdated technologies.

While the lead and zinc industry is experiencing rapid development, the problems existing in its overall size and structure—as well as the deep-seated structural and institutional contradictions that have fueled the investment boom—are becoming increasingly prominent. These are mainly manifested as follows:

(1) Resource scarcity is severely hindering the sustainable development of the lead-zinc industry. For years, smelting enterprises have primarily expanded their scale through external growth strategies. Due to limitations imposed by companies’ financial strength and the extent of resource exploration, mining investments have largely focused on developing small-scale mines, leading to a severe shortage of domestic lead-zinc resources. As a result, large and medium-sized smelting enterprises have a self-sufficiency rate for raw materials below 50%, and prices continue to soar. The tight supply of concentrates has fueled rampant and unregulated mining activities, driving up import volumes. The competition among smelting enterprises for scarce resources has become increasingly prominent. This resource scarcity is constraining the sustained development of China’s lead-zinc industry and seriously impeding the adjustment of its industrial structure.

(2) Structural contradictions are prominent, with industry profits shifting excessively toward the mining and ore-processing sector. Currently, China’s lead and zinc smelting capacity exceeds both market demand and mineral resource availability. This structural contradiction not only results in underutilized smelting capacity but also causes a significant shift of industry profits toward the mining and ore-processing sector. The difficulty in sharing benefits between mining and smelting enterprises has led to a continuous rise in the proportion of raw materials in smelting costs. In 2005, the total volume of lead and zinc metals mined and processed accounted for only 48% of the output of lead and zinc smelting products; yet the profit margin of the mining and ore-processing sector was 1.43 times that of the smelting industry. From January to May of this year, the total volume of lead and zinc metals mined and processed represented 45% of the output of lead and zinc smelting products, while the profit margin of the mining and ore-processing sector was 1.5 times that of the smelting industry. Without the recovery of valuable metals, the profitability of the smelting industry would be extremely difficult to sustain.

(3) Industry concentration has declined, and enterprises lack strong competitiveness. In 2001, the output of the top 10 lead and zinc enterprises in China accounted for 52% and 64% of the nation’s total output, respectively; by 2005, these proportions had dropped to 41% and 49%. The decade-plus period of rapid growth in the lead and zinc industry has merely resulted in a simple expansion of the number and output of independently operating mines and smelters, without truly enhancing international competitiveness.

(4) The lead smelting processes and technological equipment levels are poor, and outdated zinc smelting capacities still account for a certain proportion. Lead smelting is the most technologically backward, has the worst production conditions, the lowest sulfur recovery rate, and causes the most severe pollution among nonferrous metal industries. Some enterprises still rely on sintering pots and sintering trays—processes and equipment explicitly slated for elimination by industrial policies—and even employ rudimentary earth-based sintering trays and simple earth-built blast furnaces for lead smelting. Currently, about 30% of lead smelting capacity still uses these outdated processes. Similarly, in zinc smelting, there remains a significant amount of outdated capacity that employs traditional methods or uses homemade muffle furnaces, trough furnaces, horizontal retorts, and small vertical retorts for roasting, followed by simple condensation systems for dust collection to produce zinc or zinc oxide.

(5) The environmental impact is significant, and some enterprises suffer from severe resource waste. In backward lead smelting processes, the sulfur dioxide flue gas and lead dust generated during the sintering stage are discharged without any recovery or reuse, resulting in a harsh production environment. Sulfur dioxide and particulate matter are released directly into the atmosphere, causing serious environmental pollution. Similarly, in zinc smelting using fluidized-bed roasters, the hot acid-leaching residues containing soluble harmful heavy metal ions such as mercury, cadmium, and arsenic are often not treated according to regulations and are instead casually piled up, contaminating groundwater. Moreover, many small-scale lead and zinc smelters discharge their wastewater directly without any treatment, leading to contamination of water sources by harmful substances like heavy metal ions, benzene, and phenols. Furthermore, there are too many small- and medium-sized lead and zinc smelting enterprises; some of these small enterprises have annual output below 2,000 tons and do not recycle other valuable metals at all, resulting in severe resource wastage and making them enterprises explicitly slated for elimination under industrial policy.

(6) The issue of blind investment in lead and zinc smelting is severe. After 2004, as foreign companies reduced and shifted their smelting capacity overseas, lead and zinc market prices continued to rise. At the same time, the rapid expansion of downstream industries domestically spurred a sharp, temporary surge in market demand, altering China’s long-standing situation in which roughly one-third of its lead and zinc smelting products had to be exported to absorb excess supply. As a result, in recent years, China’s lead and zinc industry—especially smelting investments—has experienced rapid growth. Due to the absence of systematic entry requirements for lead and zinc smelting enterprises, coupled with difficulties in effectively supervising construction activities in the lead and zinc smelting sector, newly built projects that violate industrial policies have repeatedly been prohibited yet persist unabated, and these projects are generally small-scale. Newly established small smelters typically adopt outdated technologies and equipment, sacrificing environmental protection standards to cut investment costs and thereby boost their economic profitability.

The survey shows that in 2004, the cumulative investment completed by lead and zinc smelting enterprises above a designated size increased by 1.4 times compared to the previous year, while investment in mining and ore dressing rose by the same factor. In 2005, cumulative investment in lead and zinc smelting grew by 70% year-on-year, and investment in mining and ore dressing expanded by 61.9%. Currently, there are 169 ongoing lead and zinc smelting investment projects with a total planned investment of 12.5 billion yuan. Among these, 132 projects are aimed at expanding production capacity, with a total planned investment of 11.2 billion yuan. Just in 2006 alone, 74 new projects were started, with a total planned investment of 2 billion yuan; of these, 60 projects are designed to increase production capacity, with a planned investment of nearly 1.7 billion yuan. However, the average construction scale declined by 8.8% year-on-year. According to statistics on the 62 projects with clearly defined construction scales, their combined annual production capacity exceeds 3.15 million tons. Among them, there are 30 ongoing lead smelting projects with a capacity of approximately 1.5 million tons, and 32 ongoing zinc smelting projects with a capacity of about 1.65 million tons. Additionally, there are numerous proposed projects (around 400,000 tons of lead and about 1.2 million tons of zinc). If all these projects come online, they will add 1.9 million tons of annual lead capacity and 2.9 million tons of annual zinc capacity. Although mining investments involve as many as 191 projects, most of them remain small-scale mines, meaning that the future supply of refined lead and zinc concentrates will not be substantial.

Driven by rising prices and optimistic market expectations, some investors have disregarded external constraints such as resource availability and environmental considerations, and have concentrated on building smelting projects. As a result, investment in lead and zinc smelting has continued to grow rapidly, leading to a sharp expansion of smelting capacity in the short term. If all of this newly built smelting capacity were to become operational, the industry would face a severe oversupply situation. Moreover, the shortage of mineral resources would further limit the full utilization of this smelting capacity. At the same time, the environmental problems caused by small-scale smelters would become even more pronounced. It is imperative to accelerate the adjustment of the industrial structure in a timely manner and to regulate investment activities in the lead and zinc sector.

II. Guiding Principles and Main Objectives for the Structural Adjustment of the Lead-Zinc Industry

(1) Guiding Principles. Centered on standardizing investment behavior in the lead and zinc industry and transforming the growth model of the lead and zinc industry, with structural adjustment as the key focus, we will provide macro-level guidance based on the principles of structural optimization, technological advancement, scientific planning, energy conservation and consumption reduction, environmental protection, and safe production. This will ensure standardized investment and orderly development, enhance the technological and equipment levels of enterprises, strengthen environmental protection, adjust industrial structure, improve product mix, and promote the sustainable development of the lead and zinc industry.

(2) Main objectives: Maintain a basic balance between supply and demand for lead and zinc, promote orderly development in accordance with the planning, and curb the blind expansion of lead and zinc smelting capacity. After phasing out outdated production capacities by 2010, annual refined lead production capacity will be capped at 4 million tons, and annual zinc production capacity will be capped at 5 million tons. Strengthen the exploration and development of domestic resources, accelerate the implementation of the “Going Global” strategy, and enhance the security of raw material supply. At the same time, vigorously develop the lead and zinc recycling industry, ensuring that recycled resource consumption reaches 30% of total consumption.

In terms of corporate organizational structure, while curbing the reckless expansion of smelting capacity, we will support the strong and eliminate the weak, adjust the structure, and promote the joint restructuring of leading, backbone smelting and mining enterprises, so that the output of these backbone smelting enterprises accounts for more than 70% of the total output.

In terms of technological infrastructure, lead smelting exclusively employs advanced crude-lead smelting processes—such as oxygen-enriched intensified smelting, Isa furnace smelting, and Kaldo furnace smelting—that feature high resource recovery rates, low energy consumption, and compliance with environmental standards. The comprehensive energy consumption for lead smelting is 600 kg of standard coal per ton, and the overall smelting recovery rate reaches 97%. The coke consumption for crude-lead smelting is 350 kg per ton, while the direct current electricity consumption for electrolytic lead smelting has been reduced to 110 kWh per ton. The total sulfur utilization rate exceeds 95%, and the recycled water utilization rate reaches 95%. For zinc smelting, the comprehensive energy consumption for refined zinc distillation is 1,900 kg of standard coal per ton, and the comprehensive energy consumption for electrolytic zinc is 1,700 kg of standard coal per ton, with an overall smelting recovery rate of 98%. The coal consumption for zinc distillation is 1,250 kg per ton, and the direct current electricity consumption for electrolytic zinc has been reduced to 2,900 kWh per ton. The total sulfur utilization rate exceeds 96%, and the recycled water utilization rate reaches 95%. Emissions of sulfur dioxide and dust meet regulatory standards. The recovery rate of valuable metals reaches 95%.

III. Key Policy Measures

(1) Strengthen guidance on industrial policies and industry planning and layout.

In accordance with the requirements of sustainable development, we should formulate industrial development policies for the lead and zinc industry, and carefully plan and arrange the industry’s layout while taking into account factors such as resources, environment, and energy. The planned addition of new production capacity must be closely aligned with the goals of phasing out outdated capacity and adjusting the industrial structure. We should accelerate the establishment of market access criteria for lead and zinc smelting, rigorously scrutinizing applications from aspects including site layout and external production conditions, process equipment, energy consumption, resource utilization, environmental protection, and safe production, thereby promoting structural optimization.

(2) Strengthen coordination and synergy among industrial policies and policies related to land, credit, environmental protection, safety, and other areas; strictly control the launch of new projects.

Strengthen land and credit reviews, uphold the strictest land management system, and rigorously control credit allocation to the lead and zinc smelting industry. Support lead and zinc smelting projects that comply with national industrial policies, market access requirements, and credit principles. However, projects involving blind investment, non-compliance with industrial policies and market access conditions, use of outdated production technologies explicitly banned by the state, or failure to register in accordance with prescribed procedures—whether they are lead and zinc smelting projects or enterprises—will be categorically denied land allocation, barred from receiving any form of additional credit support, and will not be processed for environmental protection, safe production, or industrial hygiene-related permits and approvals. Adjust the Catalog of Foreign Investment, prohibiting foreign-invested projects with low technological levels, high resource consumption, and severe pollution from entering the country. In accordance with regulations such as the "Guidance Catalog for Industrial Structure Adjustment (2005 Edition)" approved by the State Council (Order No. 40 of the National Development and Reform Commission), newly established smelting projects featuring backward production capacities and lacking economic scale are strictly prohibited. For newly built lead smelting projects, the capacity of each individual smelting system must reach at least 50,000 tons per year (excluding 50,000 tons); these projects must adopt advanced technologies such as oxygen-enriched intensified smelting, Isa furnace smelting, or Kaldo furnace smelting, along with dual-turn-and-double-suction acid-making systems, achieving a recycled water utilization rate of over 95%. For newly built zinc smelting projects, each individual smelting system must have a capacity of at least 100,000 tons per year; these projects must employ advanced smelting technologies such as fluidized-bed roasting furnaces measuring 109 square meters or larger, coupled with dual-turn-and-double-suction acid-making systems, also achieving a recycled water utilization rate of over 95%.

(3) Intensify efforts to adjust the industrial structure and phase out outdated industries.

In accordance with industrial policies such as the “Guidance Catalog for Industrial Structure Adjustment (2005 Edition),” immediately phase out outdated lead-smelting processes and equipment, including earth-based sintering pans, simple blast furnaces, sintering pots, and sintering pans, as well as the recycled lead smelting process using crucible furnaces and the outdated zinc or zinc oxide smelting processes that employ earth-made muffle furnaces, trough furnaces, horizontal tanks, small vertical tanks, and simple condensation systems for dust collection. By the end of 2008, phase out lead-smelting processes using sintering machines that, even after environmental upgrades, still fail to meet emission standards or lack the necessary acid production and tail-gas absorption systems.

A differentiated electricity pricing policy will be implemented for backward production capacities and newly commissioned zinc smelting projects that violate industrial policies, fully leveraging economic incentives to phase out outdated facilities.

Develop a circular economy, support the recycling and reuse of lead and zinc resources, and encourage the recycling industry to pursue a path of scaled-up, environmentally friendly development. Raise the technological and environmental standards of lead recycling enterprises; newly established lead recycling projects must have a capacity of at least 10,000 tons per year, and the construction of new lead recycling projects using direct-fired reverberatory furnaces fueled by coal is prohibited. Take advantage of the early-stage development of the recycled zinc industry to standardize its development practices.

Support leading enterprises in continuing to implement reforms, restructuring, and upgrades to enhance their international competitiveness. Encourage smelting enterprises to join forces with mining enterprises, leveraging their respective strengths and complementing each other’s advantages. Prohibit mining enterprises that do not meet the necessary conditions from undertaking smelting projects. Increase support for leading, backbone enterprises to raise industry concentration; regulate market order and prevent disorderly competition. Adhere to a combination of technological upgrading and phasing out outdated technologies, as well as scaling up large enterprises while closing smaller ones, and establish an exit mechanism supported by appropriate policies. Local governments and relevant departments should strictly regulate the restructuring of lead and zinc enterprises and adopt effective measures to prevent enterprises from evading bank debts under the guise of restructuring and reorganization.

(4) Promote the comprehensive utilization and conservation of resources, and increase support for exploration of lead-zinc mineral resources and overseas resource development.

All lead and zinc smelting investment projects must include provisions for the comprehensive utilization of valuable metals; otherwise, they will not be registered. We support research and development of key technologies for the recovery and utilization of valuable metals associated with lead and zinc mining. Enterprises are encouraged to enhance the efficiency of existing resource utilization and improve the comprehensive recovery rate of valuable metals through technological upgrades. We uphold the principle of giving equal weight to both resource development and conservation, placing conservation first. We encourage leading smelting enterprises to collaborate with geological exploration companies to strengthen geological prospecting efforts and increase reserves of backup resources. In accordance with the spirit of the “Notice of the State Council on Comprehensively Rectifying and Standardizing the Order of Mineral Resource Development” (Guofa [2005] No. 28), we will regulate construction activities for lead and zinc mining projects, severely crack down on illegal activities such as unlicensed exploration and mining of lead and zinc ores, shut down mining enterprises that cause severe environmental damage and pollution, and actively promote the integration and rational layout of lead and zinc resources to achieve large-scale, intensive resource development. In compliance with relevant regulations, including the “Regulations on Safety Production Licenses” (Decree No. 397 of the State Council), lead and zinc mining enterprises must obtain safety production licenses in accordance with the law; those without such licenses shall not engage in production activities. We will formulate overseas resource development strategies and plans, making full use of both domestic and international resources. In addition to obtaining lead and zinc concentrates, we encourage the construction of smelters abroad, thereby shifting away from the current model of solely relying on large-scale imports of concentrates.

(5) Strengthen environmental protection and promote coordinated development.

Step up enforcement efforts for environmental protection, and conduct strict inspections in accordance with the "Emission Standards for Air Pollutants from Industrial Furnaces and Kilns" (GB9078-1996), the "Comprehensive Emission Standards for Air Pollutants" (GB16297-1996), the "Comprehensive Wastewater Discharge Standards" (GB8978-1996), and relevant requirements for the treatment and disposal of hazardous waste. After the release of the "Emission Standards for Pollutants from Nonferrous Metal Industry—Lead and Zinc Industry," compliance shall be based on these new standards, thereby preventing sulfur dioxide pollution from lead smelting as well as pollution caused by the indiscriminate stockpiling of harmful heavy metal ions such as mercury, cadmium, and arsenic contained in zinc slag produced through hot acid leaching during zinc smelting. It is strictly prohibited for lead and zinc smelters to discharge wastewater containing heavy metal ions, benzene, phenol, and other harmful substances that fail to meet the prescribed standards.

(6) Strengthen import and export management.

Coordinate research and gradually refine policies related to import and export taxes on lead and zinc products. Fully leverage the roles of leading enterprises, industry associations, and chambers of commerce to strengthen coordination and daily supervision of imported lead and zinc concentrates. Harness the role of intermediary organizations to promote self-regulation within the industry and standardize import and export order.

National Development and Reform Commission
Ministry of Finance
Ministry of Natural Resources
Ministry of Commerce
People's Bank
General Administration of Customs
State Administration of Taxation
Environmental Protection Bureau
State Administration of Work Safety
September 13, 2006