Under the current “new normal” in the economy, China’s mining sector—having just emerged from its golden decade—continues to languish and remain in a slump. According to relevant data, as of... 2015 By year-end, several major mining industries in China—such as coal, steel, cement, iron ore, and nonferrous metals—were plunged into widespread distress, with the proportion of loss-making enterprises reaching... 80% As mentioned above, industrial profits have plummeted, and overcapacity is severe. It’s already a stroke of good fortune that companies can maintain normal production and avoid losses.

The reason why China’s economy—including its mining sector—is facing such a predicament ultimately lies in the severe imbalance between supply and demand in our country. “ Supply-demand mismatch ” The effective supply fails to keep pace with changes in market demand, leading to a structural imbalance between supply and demand for products. The scope of losses has already reached a significant level. 90% Regarding the coal industry mentioned above, the current existing production capacity is... 40 100 million tons, under construction scale 11 hundred million tons, while 2015 The total annual coal demand is only 36 100 million tons—this means that coal overcapacity will soon exceed 1 billion tons. The same is true for the iron ore industry. Just recently, 2015 In recent years, on the one hand, domestic steel enterprises have been struggling due to overcapacity in the steel industry. 1982 For the first time in years, production cuts have led to an overall reduction in demand for iron ore. On the other hand, domestic iron ore production costs remain high, while overseas iron ore prices enjoy a stronger competitive edge over domestic prices, resulting in a slight increase in imports. This, in turn, has further squeezed the market for domestic iron ore enterprises, leaving many of them struggling to survive and forcing them to close down or suspend operations one after another.

It can be said that the difficulties currently facing China’s mining economy have undergone a substantive shift compared to the past. If we continue to focus solely on the demand side and rely on increased investment to drive growth as we did in the past, it will become increasingly difficult to achieve breakthroughs. Therefore, accelerating supply-side reform and boosting effective supply have become imperative and are now firmly on track.

The so-called supply-side structural reform involves using reform measures to promote structural adjustments, correct distortions in factor allocation, expand effective supply, enable the supply system to better adapt to changes in demand, and enhance total-factor productivity.

In fact, as early as last year... 11 Moon 10 At the 11th meeting of the Central Financial Leadership Group held today, General Secretary Xi Jinping put forward... “ Supply-side structural reform ” Concept: “ While moderately expanding aggregate demand, we will focus on strengthening supply-side structural reform, enhancing the quality and efficiency of the supply system, and bolstering the momentum for sustained economic growth. ” At 2016 Year 1 Moon 26 At the 12th meeting of the Central Financial Leadership Group held recently, General Secretary Xi Jinping once again emphasized that the fundamental goal of supply-side structural reform is to raise the level of social productivity and effectively implement the development philosophy centered on the people. While appropriately expanding total demand, we must reduce excess capacity, destock, deleverage, cut costs, and address shortcomings. We should strengthen high-quality supply in the production sector, reduce ineffective supply, enhance the adaptability and flexibility of the supply structure, boost total factor productivity, and enable the supply system to better respond to changes in demand patterns.

There is no doubt that the repeated calls and emphases, at such a high-level meeting as the Central Financial Leadership Group, on strengthening supply-side structural reform clearly underscore the importance and urgency of this reform. But specifically when it comes to the mining industry, how exactly can we promote and reinforce supply-side structural reform?

Thus, a reporter from China Business News was reminded of a recent Weibo post by Sun Liping, a renowned sociologist and professor at Tsinghua University, which has been widely circulated in friends’ WeChat Moments. The post, titled “What Is Supply-Side Reform? Take Steamed Buns as an Example,” essentially argued that there’s a steamed-bun shop in Wuhu that’s reportedly been around since the Guangxu era. Despite producing plenty of buns, they just can’t seem to sell them—what’s commonly referred to as insufficient domestic demand or overcapacity. The shop tried boosting sales by focusing on the demand side, coming up with various promotional ideas, yet the buns still didn’t find buyers. Moreover, exports have largely reached saturation. This suggests that there’s little room left for further efforts on the demand side. So the shop turned its attention to the supply side: making more delicious buns while cutting back—or even eliminating altogether—the less palatable ones (this is precisely what supply-side reform entails: developing emerging industries, offering products that meet market demands, reducing inventory, and eliminating excess capacity). But unexpectedly, even after producing tasty buns, sales didn’t increase much. Many people still weren’t buying these buns; instead, they’d just grab two steamed mantou and pair them with some pickled vegetables. It turned out that the real issue was still demand: compared to mantou, the buns were simply too expensive. And the shop owner himself had plenty of grievances to share—after all, taxes accounted for a significant portion of the cost of each bun. 5 The cost of each steamed bun is already quite high. Although the ingredients—flour, meat, and vegetables—are not expensive, the shipping costs are hefty. Just the logistics cost for each bun adds up to a full yuan, and then there’s the rent, labor costs, and all sorts of other miscellaneous expenses. As a result, there’s simply no room left for lowering the price of the buns.

In his Weibo post, Professor Sun Liping concluded that the crux of the problem lies precisely in the gray area between supply and demand. It is precisely because this middle ground has become distorted that enterprises find it unprofitable to produce certain goods, while consumers are forced to pay exorbitant prices for them. The bottom line, therefore, is that only by smoothing out this middle zone can we unlock both ends—the supply side and the demand side. Subsequently, industry insiders commented that there are two ways to understand the so-called “middle-zone problem”: First, government taxes and social security contributions are excessively high, making it impossible for enterprises to survive; second, state-owned monopolies hoard too many social resources yet remain highly inefficient, relying on price monopolies to stay afloat and driving up production costs across the entire society. Thus, the government should cut taxes and fees.

It can be said that using steamed buns as an analogy for supply-side structural reform is both vivid and engaging, making what might seem like a complex issue surprisingly simple and easy to understand—and it also clearly points out the direction of supply-side structural reform. However, when it comes to supply-side structural reform in the mining industry, if we merely focus on... “ Clear the middle ” Simply getting started is clearly far from enough and may not necessarily achieve the goal of reform.

As for reducing the burden on enterprises, in recent years, the state has implemented a series of reform measures—such as abolishing administrative approval procedures and fee-charging items—resulting in nearly all possible reductions and exemptions for businesses. The scope for further reductions and exemptions is now extremely limited. In terms of taxation, many localities are currently experiencing significant production cuts or even shutdowns among most enterprises within their jurisdictions, leading to a substantial shrinkage of the tax base and a sharp decline in fiscal revenues. Some counties (and cities) have already found themselves in a situation where their expenditures exceed their revenues, forcing them to rely on loans just to pay salaries. Under these dire circumstances, if we were to attempt to further ease the tax burden in order to unblock... “ Middle ground ” It’s clearly ill-timed. As for lowering social security contributions, the feasibility goes without saying—right now, many regions are experiencing deficits in their social security funds. “ Idling ” Relying on fiscal transfers alone can no longer bridge the huge pension deficit. As a mining city, Fushun in Liaoning Province has seen its pension deficit grow year after year, reaching anywhere from two to three billion yuan—a figure that has only exacerbated the already strained local finances, which are struggling to balance income and expenditure.

In fact, specifically when it comes to China’s mining industry, we should focus even more on strengthening our internal capabilities and honing our internal strengths, in accordance with... “ Strengthen high-quality supply in the production sector, reduce ineffective supply, enhance the adaptability and flexibility of the supply structure, and improve total factor productivity. ” Overall, the key to strengthening supply-side reform should be to enhance quality and efficiency through technological innovation and institutional and systemic reforms, focusing on addressing deep-seated structural issues that constrain improvements in economic efficiency and enterprise development, thereby unleashing and fostering productive forces.

Currently, China’s supply system as a whole suffers from an oversupply of mid- and low-end products, while the supply of high-end products is insufficient. Even in some traditional industries that already face severe overcapacity, there is generally a structural shortage of effectively supplied goods. For example, in the coal industry, although overall capacity is now severely overabundant, certain specific varieties—such as prime coking coal—are not only not in surplus but are actually in short supply. In the current coal industry... 90% Amid the grim situation of losses faced by the above-mentioned enterprises, coal companies specializing in prime coking coal still have room for profitability. According to available information, two major coal enterprises—Yongmei Group and Shenhuo Coal & Power, both located in eastern Henan—although experiencing an overall challenging environment, have managed to keep their coal divisions largely profitable, thanks primarily to the specific types of coal they produce. As for iron ore mining enterprises, this phenomenon is even more pronounced. Many iron ore mines supply iron concentrate with relatively low grade, mostly classified as mid-to-low-end products. However, certain domestic iron ore mines, benefiting from advanced mining and beneficiation technologies, produce high-grade iron concentrate that qualifies as premium products, enabling them to compete effectively with overseas iron ores and ensuring their continued survival and development. Liaoning Benxi Mining Co., Ltd. and Fushun Hanwang Group Aoniu Iron Ore Mine, for instance, have achieved superior iron concentrate grades precisely because of their advanced mining and beneficiation technologies. 2 Percentage point～ 3 A few percentage points—selling dozens of yuan more per ton—allowed it to remain unaffected while other iron ore mining companies were纷纷 closing down and halting production.

In fact, by leveraging technological innovation and process improvements, mining enterprises can not only enhance quality and efficiency, improve product quality, and increase the supply of high-quality products, but also effectively reduce costs and boost total-factor productivity. The Zhengzhou Institute of Comprehensive Utilization of Mineral Resources under the Chinese Academy of Geological Sciences has developed a solution specifically tailored for domestic iron mines. “ Magnetic Field Screening Method ” Mineral processing equipment not only effectively improves the recovery rate and grade of iron concentrate but also significantly reduces production costs. According to rough estimates, the number of units promoted by the institute over the past few years is... 10 Iron ore enterprises have, on average, increased the grade of their concentrate. 4 percentage points, and the highest concentrate grade reached 71.5% Meanwhile, the cost of ore dressing has dropped significantly. After adopting this equipment, traditional ball mills can be replaced, and this alone can save millions of yuan in electricity costs each year. The ore-dressing equipment developed by the institute has demonstrated remarkable results after being put into use at several iron mines under Jianlong Group. Recently, after installing and operating new ore-dressing equipment at a vanadium-titanium magnetite mine in Liangshan Prefecture, Sichuan Province, production costs have noticeably declined, and the company has begun to turn a profit.

“ For mining enterprises, there is considerable room to strengthen supply-side structural reform by relying on scientific and technological progress. Particularly in ore-dressing equipment and processes, if advanced equipment is introduced and cutting-edge technologies are adopted, and products are managed with differentiation—offering a mix of high-, mid-, and low-end products, ensuring that there are high-end options for high-end demand and low-end options for low-end demand—this will enable the enterprises to provide high-quality, efficient supplies and enhance their economic efficiency. ” Feng Ansheng from the Institute of Comprehensive Utilization of Mineral Resources in Zhengzhou, Chinese Academy of Geological Sciences, introduced that applying advanced technological processes to enhance product quality can not only boost the competitiveness and profitability of mining enterprises but also reduce production costs for downstream industries. Take the Anshan-type iron ore as an example: improving the grade of the concentrate... 1% Ironmaking slag volume reduced. 50–60 kg/tFe ; Sinter grade improved 1% Ironmaking slag volume reduced. 30–35 kg/tFe ; Sinter grade improved 1% The coke ratio is reduced. 7.86kg This is of great significance for reducing unit production costs and enhancing both economic and ecological benefits. Such a supply of products will undoubtedly be high-quality, thus avoiding the risk of oversupply.

Liu Yachuan, Director of the Institute of Comprehensive Utilization of Mineral Resources at the Chinese Academy of Geological Sciences, shares the same view. He believes that for metal mines with complex ore-processing technologies, advancing supply-side structural reform must start with innovation-driven development and be led by science and technology. Efforts should focus on the research and improvement of ore-processing equipment manufacturing, process flows, and flotation reagents, thereby enhancing product quality and competitiveness by increasing ore recovery rates, improving comprehensive utilization rates, and reducing ore-processing costs.

The roasting and beneficiation process developed by the institute for low-grade iron ore has significantly reduced costs after being tested at Ansteel and JiuSteel. In particular, JiuSteel has achieved substantial savings in beneficiation costs compared to previous levels. 50% Right. Currently, the institute is also developing equipment tailored to ore-dressing processes for other metal ores.

“ The more widespread economic downturn currently affecting many mining enterprises, the greater the potential for comprehensive mineral utilization to make a meaningful contribution. Mining companies can achieve higher efficiency and drive supply-side structural reform by upgrading and optimizing their ore-processing workflows with relatively modest investments. ” Liu Yachuan said.

There is only overcapacity, but no excess products. For mining enterprises, continuing to pursue economies of scale by simply expanding their size and capacity as they have done in the past would undoubtedly lead them down a dead end. The only viable path forward lies in strengthening supply-side structural reform—relying on technological innovation to unleash the vitality of all production factors, optimizing and upgrading mining and beneficiation processes, improving product quality and efficiency, reducing costs, increasing the supply of high-quality products, enhancing product competitiveness, and transforming excess capacity into high-quality capacity. □