Abstract: Influenced by the theories of ground rent and mineral resource depletion, China has gradually established a compensation mechanism for mineral resources and has achieved initial success. However, the existing tax and fee system for mineral resources suffers from unclear relationships among various taxes and fees, vague bases for collection, and a disconnect between the resource tax system and the requirements of market mechanisms. As a result, it is difficult to promote the rational utilization of resources and fails to meet the central government’s goal of using taxation to regulate and guide local economic development. Therefore, it is necessary to take the Scientific Outlook on Development as our guiding principle and build a new compensation mechanism for mineral resources. First, at the collection stage, we should merge the existing major taxes and fees related to mineral resources and establish a royalty system. Second, based on the conditions for mineral resource exploration and development as well as market demand, we should scientifically determine the appropriate royalty rates. Third, at the distribution stage, in accordance with the requirements of the Scientific Outlook on Development, we should rationally adjust the balance of interests among the central and local governments, exploration and development, resource utilization and protection, and the interests of mining enterprises and local communities, thereby ensuring coordinated development of the economy, society, and the environment.
Keywords: Scientific Development Concept; Mineral Resources; Innovation in Compensation Mechanisms
Establishing and improving a compensation mechanism for mineral resource development is not only an important guarantee for the sustainable development of the mining industry, but also a crucial step in adhering to the Scientific Outlook on Development as the guiding principle for overall economic and social development, building a resource-efficient and environmentally friendly society, and promoting coordinated regional development. This article, taking into account China’s unique characteristics and supply-demand situation regarding mineral resources, starts with the relevant theories of mineral resource compensation mechanisms, analyzes the current status of China’s mineral resource compensation mechanism and its major existing problems, and then, guided by the Scientific Outlook on Development, puts forward policy recommendations for scientifically constructing a new mechanism for mineral resource compensation in China.
I. The Significance of the Reform of the Mineral Resource Tax and Fee System
(1) Mineral resources are an essential material foundation for the survival and development of human society. Implementing a reform of the mineral resource tax and fee system is necessary to ease the supply-demand contradictions in mineral resources and promote the sustainable development of China’s mining industry.
Mineral resources are a critically important, non-renewable natural resource and serve as the vital material foundation upon which human society depends for its survival and development. More than 95% of the world’s primary energy, over 80% of industrial raw materials, more than 70% of agricultural production inputs, over 30% of domestic water supplies, and more than 17% of consumer goods all originate from mineral resources. Currently, China’s mining industry supports nearly 90% of other industries, and the output value of the mining and mineral-processing sectors accounts for over 30% of the nation’s GDP. The exploration and utilization of mineral resources provide crucial support for the country’s economic and social development.
Our country is currently undergoing a rapid industrialization process and aims to fully achieve a moderately prosperous society by 2020. Although our country has committed to following a new path of industrialization, in line with the general patterns observed in the industrialization processes of developed nations, the industrialization phase will inevitably involve massive consumption of mineral resources. This poses even greater challenges for the resource industry, which already faces acute supply-demand contradictions. We must, from the standpoint of national interests, adopt a scientific development outlook to coordinate resource exploitation with environmental protection, thereby alleviating the supply-demand tensions in mineral resources and promoting the sustainable development of the mining sector. By implementing reforms in mineral resource taxes and fees, we can use economic tools to adjust the interests among various mineral resource interest groups, increase compensation for resource development, and thus enhance the efficiency of mineral resource utilization. Mining enterprises, by boosting their capacity for deep processing and adding value to mineral products, can achieve the goals of conserving and intensively using mineral resources, easing resource-constraint bottlenecks, and strengthening resource security capabilities.
(2) Implementing the reform of mineral resource taxes and fees is an inevitable requirement for the development of China’s socialist market economy.
Although numerous efforts have been made to clean up and regulate the mining sector, the deep-rooted contradictions and problems in mineral resource development remain unresolved. In some regions, the order of mining development is still quite chaotic, with issues such as extensive and inefficient operations, wasteful use of resources, environmental damage, and frequent safety accidents persisting. The underlying reasons are that China’s socialist market economy is not yet fully developed, government regulatory tools have not yet kept pace with the demands of the market economy, and the institutional framework for the mining industry remains incomplete. For many years, mining rights could be obtained free of charge, leading enterprises to take resources for granted. Moreover, the mechanism for pricing mineral products is imperfect, which undermines efforts to ensure safe production, conserve resources, and protect the environment. Additionally, the policies governing resource taxes and fees are incomplete, the mechanisms for distributing benefits are unreasonable, and adequate compensation for national interests and public welfare is lacking. Therefore, implementing reforms in mineral resource taxation and fees is not only a necessity dictated by the inherent laws of mining development itself but also an inevitable requirement for the development of China’s socialist market economy.
(3) Establishing a mineral resource compensation mechanism is necessary for implementing the central government’s reform of the mining tax and fee system.
The Party Central Committee and the State Council have consistently attached great importance to the protection and rational utilization of mineral resources, particularly emphasizing in recent years the use of market-economic mechanisms to promote mining development. At the 2006 “Two Sessions,” Premier Wen Jiabao, in his Government Work Report, proposed “comprehensively employing various means—especially economic instruments such as prices and taxes—to encourage the conservation and rational use of resources.” The “Notice of the State Council on Comprehensively Rectifying and Standardizing the Order of Mineral Resource Development” (Guofa [2005] No. 28) also stipulates that “the existing policies on mining taxes and fees should be adjusted, and proactive exploration should be undertaken to link the collection of mineral resource taxes and fees with the consumption of reserves. The distribution of interests in mineral resources should be streamlined, and the investment environment for mining should be improved.” Furthermore, “the Ministry of Finance, the Ministry of Natural Resources, and other relevant departments should promptly formulate economic policies for the ecological restoration of mining areas and actively promote compensation mechanisms such as the deposit system for ecological restoration of mining sites.” Therefore, establishing a compensation mechanism for mineral resources is an important task for implementing the central government’s directives on rectifying and standardizing the order of mineral resource development and carrying out reforms in the mining tax and fee system.
II. Current Status and Analysis of Existing Problems in China’s Mineral Resource Tax and Fee System
(1) Analysis of Mineral Resource Rights
As evidenced by research findings on the attributes of mineral resources and the governing principles underlying their management, the establishment and improvement of a compensation mechanism for mineral resource development involve the following stakeholders: owners of mineral resources, holders of exploration rights, holders of mining rights, local governments in the areas where mining operations are located, and local residents. The analysis of the relationship between each party’s rights and economic responsibilities is as follows.
1. Owner of mineral resources
According to China’s Constitution, mineral resources are owned by the state, and the state is the sole holder of all related rights and interests. The state ownership of mineral resources refers to the rights enjoyed by the state—as the owner—under the law to possess, use, benefit from, and dispose of mineral resources within its territorial boundaries, while excluding interference from others. Under market economic conditions, property rights represent a central issue. The state ownership of mineral resources constitutes the core element of the entire legal framework governing mineral resources in China; accordingly, the compensation mechanism for mineral resource development must first and foremost compensate for the state’s ownership rights, thereby ensuring the full realization of the state’s interests.
2. Mining rights holder
According to Chinese law, “mining rights refer to the right to exploit mineral resources and obtain the mined mineral products within the scope prescribed in the mining license obtained in accordance with the law.” The legal nature of mining rights is relatively clear: they are private rights subject to public-law constraints. The provision stating “the right to obtain the mined mineral products” grants mining right holders a de facto right of disposition under the law, enabling them to realize returns through the sales revenue generated from the mined mineral products. However, mining inevitably leads to the depletion of mineral resources, causes damage to the ecological environment, and increases social management costs, all of which necessitate compensation. Therefore, mining right holders cannot exclusively retain the sales revenue from mineral products; rather, they must allocate a portion of this revenue to other stakeholders with legitimate interests. The rights rightfully accruing to mining right holders are limited to recovering their mining costs—including infrastructure investments—and obtaining a reasonable profit margin from mining operations.
3. Prospecting Rights Holder
According to China’s laws, “prospecting rights refer to the right to explore mineral resources within the scope prescribed by the exploration license legally obtained.” The rights of a prospecting rights holder are limited to the exploration license itself; the realization of their interests is merely an expectation that can be fulfilled only in future mining activities. Although China’s laws stipulate that a prospecting rights holder enjoys priority in obtaining mining rights, there is no inherent legal guarantee for a seamless transition from a prospecting rights holder to a mining rights holder. Since prospecting rights fall under the category of intellectual property rights, we should draw on the mechanisms used to realize intellectual property rights and establish a system for protecting prospecting rights, a mandatory utilization system, and a compensation system. By means of clear legal provisions, we can ensure the effective realization of the options held by prospecting rights holders, genuinely address the near-absent positive feedback loop between investment and output that has emerged during the reform of the geological survey system, and thereby encourage mineral exploration efforts. This approach could even prove more effective than the Geological Exploration Fund in breaking through bottlenecks in mineral resource development.
4. Local government and residents in the mining area
The development and utilization of mineral resources can boost local economic growth and strengthen infrastructure. However, it also increases the pressure on the local geological environment and raises social regulatory responsibilities—such as overseeing mining order, ensuring social and labor protections for miners, and providing assistance for the transformation of mining towns, among other issues. Environmental governance and social regulation come at a cost, which must be compensated for; therefore, a portion of the revenue generated from the sale of mineral products should be allocated to cover these costs.
In summary, all the revenues from mineral resources are reflected in the sales revenue from mineral products, which need to be reasonably allocated among the various stakeholders.
(2) Types and Significance of Current Mineral Resource Taxes and Fees in China
Influenced by the theories of ground rent and mineral resource depletion, China has gradually established a mineral resource compensation mechanism. Below, we will analyze China’s current mineral resource compensation mechanism from several aspects, including mineral resource taxes, mineral resource compensation fees, fees for the use of exploration rights and mining rights, as well as payments for exploration rights and mining rights.
1. Mineral Resource Tax
In addition to levying common taxes such as income tax, value-added tax, urban maintenance and construction tax, education surcharge, and land-use tax on mining enterprises, China also imposes a resource tax on these enterprises in its capacity as the owner of natural resources.
In October 1984, China began levying the resource tax for the first time. The original intention behind introducing the resource tax was primarily to promote the rational exploitation, efficient use, and effective allocation of state-owned resources; to regulate the differential rents arising from natural resource endowments; to balance corporate profit levels; and to create a fair external environment for business competition. In 1994, the State reissued the "Interim Regulations on the Resource Tax of the People's Republic of China," which significantly revised the method of collecting the resource tax, shifting toward a policy of "unified taxation and simplified tax system" and "universal collection with differential adjustment." The resource tax introduced by the State in 1984 had adopted a "starting-point collection" approach based on a 12% profit margin—meaning that mining enterprises failing to achieve a 12% profit margin were exempt from paying the resource tax. Due to this collection principle, the State only collected differential rents but not absolute rents, thus failing to provide adequate compensation for the resources themselves. Consequently, starting in 1994, the resource tax was collected using a quantity-based fixed-rate method. The fundamental principle underlying the determination of tax rates was "universal collection with differential adjustment." The term "universal collection" means that all enterprises and individuals engaged in the business of taxable mineral products are required by law to pay the resource tax. The term "differential adjustment" refers to the fact that different types of minerals have different tax rate ranges, and even within the same type of mineral, mining enterprises or mining areas at different resource grades are subject to varying tax rates (equivalent to the collection of differential rents). The theoretical explanation for the principle of "universal collection with differential adjustment" is that "universal collection" embodies the principle of absolute rent or resource compensation, while "differential adjustment" targets differential rents. On the one hand, the principle of "universal collection" has raised the marginal grade of mineral resources, thereby leading to the phenomenon of exploiting high-grade deposits while neglecting low-grade ones and wasting mineral resources. On the other hand, it has also prevented many mineral resources that generate rents but fall short of the threshold for paying the resource tax from being put into commercial development, thereby restricting the flow of profitable capital into the mining industry and adding obstacles to the transformation of resource advantages into economic advantages.
2. Mineral Resource Compensation Fee
The mineral resource compensation fee emerged during the transitional period when geological exploration shifted from a planned economy to a market economy. The original intention behind establishing this fee was to make up for the shortfall in the state’s investment in resource exploration. In 1994, the State Council issued the "Regulations on the Collection and Administration of Mineral Resource Compensation Fees," which came into effect on April 1, 1994. These regulations clearly stipulate that the entity responsible for collecting the mineral resource compensation fee is the mining rights holder, and the objects subject to the fee are mineral products—such as crude oil, raw coal, raw ore, or concentrates—that have been extracted or processed and thus removed from their natural state. The basis for calculating the fee is the sales revenue of these mineral products. Generally, the mineral resource compensation fee is paid monthly or quarterly and remitted directly to the central treasury. At year-end, the central government and local authorities (provinces and municipalities) split the collected fees according to a prescribed ratio of 5:5; in ethnic minority regions, the split is 4:6, with separate accounting. According to the "Interim Measures for the Management of the Use of Mineral Resource Compensation Fees" issued in 1996 by the Ministry of Finance, the Ministry of Geology and Mineral Resources, and the State Planning Commission, the portion of the mineral resource compensation fee allocated to the central government is incorporated into the national budget and managed specifically. The designated uses and allocation proportions are as follows: 70% is earmarked for expenditures on mineral exploration, 20% for expenditures on the protection of mineral resources, and 10% for subsidies to the departments responsible for collecting the mineral resource compensation fee. Judging from the above-mentioned aspects—the entities collecting the fee, the objects subject to the fee, and the intended uses of the collected funds—it is evident that the mineral resource compensation fee is essentially equivalent to royalties paid abroad, serving as rent paid by mineral resource users to their owners. However, at present, the resource compensation rate for most types of mineral resources in China stands at only 1% to 2% of the sales revenue of the corresponding mineral products, which amounts to roughly 10% of the royalties typically paid in developed mining countries to reflect the rights and interests of resource owners. Therefore, in this sense, the mineral resource compensation fee currently collected in China represents only a small fraction of the royalties collected in developed mining countries.
3. Exploration Right Usage Fee and Mining Right Usage Fee
In February 1998, the State Council issued three complementary regulations—the “Administrative Measures for the Registration of Mineral Resource Exploration Blocks,” the “Administrative Measures for the Registration of Mineral Resource Exploitation,” and the “Administrative Measures for the Transfer of Prospecting and Mining Rights”—which specifically formalized the system of paid acquisition of mining rights. Article 20 of the “Administrative Measures for the Registration of Mineral Resource Exploration Blocks” stipulates: “The State shall implement a system of paid acquisition of prospecting rights. The fee for the use of prospecting rights shall be calculated on an annual basis and paid annually.” Article 9 of the “Administrative Measures for the Registration of Mineral Resource Exploitation” provides: “The State shall implement a system of paid acquisition of mining rights. The fee for the use of mining rights shall be paid annually according to the area of the mining district and constitutes an integral part of the system of paid acquisition of mining rights.” Both the prospecting right fee and the mining right fee are paid annually by the holders of mining rights, based on the area of the mining district they have applied for and in accordance with certain standards. These fees serve a function similar to mining royalties in developed mining countries. Consequently, their collection is also grounded in the concepts of absolute rent and differential rent associated with mineral resources. From a theoretical perspective, both the prospecting right fee and the mining right fee fall within the category of royalties. Therefore, classifying them as royalties would facilitate a more rational theoretical interpretation of these fees. Moreover, currently, the mining right fee accounts for only a small proportion of the total costs incurred by mining investors for the paid use of resources. Thus, including these fees in the category of royalties for collection purposes not only simplifies the collection procedures and reduces collection costs without diminishing the state’s rights as the owner of mineral resources, but also aligns with the goal of streamlining administrative processes.
4. Exploration Right Premium and Mining Right Premium
The exploration rights fee refers to the payment collected from the exploration rights holder in accordance with regulations when the state transfers exploration rights—formed through its own investment in exploration—to the exploration rights holder. The mining rights fee refers to the payment collected from the mining rights holder in accordance with regulations when the state transfers mining rights—formed through its own investment in exploration—to the mining rights holder. As compensation for investments made in resource exploration, both the exploration rights fee and the mining rights fee should belong to the exploration enterprise regardless of whether the exploration is conducted by a wholly state-owned enterprise, a Sino-foreign joint venture, or a private enterprise in partnership with the government; they serve as remuneration for the exploration investors. Under the conditions of a socialist market economy, the acquisition of both the exploration rights fee and the mining rights fee must follow market principles. It is evident that the exploration rights fee and the mining rights fee are merely rewards for exploration investments rather than compensation for mineral resources themselves. Therefore, they are not—and should not—become part of the state’s resource compensation mechanism.
From the analysis above, we can see that the main components of China’s current mineral resource compensation mechanism are three: the resource tax, the resource compensation fee, and the fees for the use of exploration rights and mining rights. The fees for exploration rights and mining rights are merely compensation for investments made in the exploration of mineral resources; they do not compensate for the depletion of these resources. The theoretical basis for levying the resource tax, the resource compensation fee, as well as the fees for the use of exploration rights and mining rights is rooted in the theories of absolute rent, differential rent, and resource depletion. These fees are imposed by government departments acting as owners of mineral resources on those who utilize these resources.
(3) Problems Existing in China’s Current Mineral Resource Tax and Fee System
Since China implemented its mineral resource tax and fee system, it has played a certain role in promoting the paid use of mineral resources and in managing the order of mineral resource development, achieving some positive results. However, as China’s market economy system has developed and become more sophisticated, several problems have also come to light. These problems are mainly reflected in the following aspects.
1. The relationship among mineral resource taxes and fees is unclear, and the basis for collection is vague.
China’s Constitution and the Mineral Resources Law explicitly stipulate that mineral resources are owned by the state. As the owner of these resources, the state is justified in levying taxes and fees on those who develop them. This practice helps to increase fiscal revenue, regulate differential income from resource endowments, and encourage enterprises to develop and utilize mineral resources in a rational manner. However, China’s system of paid use of mineral resources has been established gradually, and today it has evolved such that the resource tax is imposed primarily to regulate differential income from resource endowments and reflect the principle of paid use of mineral resources, while the mineral resource compensation fee is collected to safeguard the state’s economic interests in its ownership of mineral resources. Moreover, from the perspective of collection practices, the mining rights premium also reflects, to some extent, the state’s ownership of mineral resources. Thus, from the standpoint of collection objectives, there is some overlap among these various taxes and fees. Furthermore, the mineral resource compensation fee is mainly used for expenditures related to mineral exploration (accounting for no less than 70% of the annual budget allocated to mineral resource compensation fees), with appropriate allocations also earmarked for mineral resource protection expenses and for subsidizing the administrative costs of the agencies responsible for collecting these fees. Yet in 1998, the state introduced and implemented a system of paid transfer of mining rights, which led to significant changes in the geological exploration market. Under these circumstances, emphasizing the use of mineral resource compensation fees as exploration expenses clearly lacks theoretical justification. As the market for mining rights continues to mature and improve, newly granted prospecting and mining rights will increasingly be transferred through competitive bidding processes—“auctions, tenders, and listings”—thus largely achieving the goal of regulating differential resource rents. Therefore, given the high-risk nature of the mining industry, the resource tax should be separated from its role in differential rent regulation.
2. The design of the resource tax system itself has inherent flaws.
Originally, the resource tax was introduced to address the disparities in natural endowment and varying degrees of mining difficulty among mineral resources, which led to differences in profitability. The tax was designed to regulate these differential returns. However, today, the resource tax has evolved into a tool for adjusting differential incomes and reflecting the principle of paid use of state-owned resources. It is levied on a quantity-based, fixed-rate basis, with the tax base determined by sales volume or self-consumption. As a result, the resource tax faces numerous problems—whether in terms of its scope of collection, tax base, unit tax rate, or revenue allocation. The narrowly defined scope of the resource tax not only leads to severe resource depletion, undermining the sustainable development of the entire economy, but also runs counter to the tax’s role in regulating the economy and fostering a fair market environment. Moreover, the current quantity-based tax base of the resource tax is unrelated to indicators such as resource reserves, recovery rates, and resource prices, making it easy for enterprises during resource extraction to “focus on rich deposits while neglecting poorer ones,” resulting in massive stockpiling and waste of resources and lowering overall recovery rates. Furthermore, the current unit tax rate for the resource tax reflects only the differential returns from resources and does not adjust according to changes in market prices, thus deviating from the requirements of market mechanisms. This indirectly encourages the reckless and excessive exploitation of natural resources, making it difficult to promote their rational utilization. In terms of revenue allocation, although the tax on offshore oil resources is stipulated to be collected by the central government, and other resource taxes are shared between the central and local governments at a 5:5 ratio (with a 4:6 split in ethnic minority regions), in practice, the resource tax has largely become a platform for fee collection by local governments at all levels and is treated as a general source of revenue for local finances. This not only fails to reflect state ownership but, more importantly, deprives the central government of an effective means of using taxation to regulate local economic development.
Therefore, the current theoretical basis for levying taxes and fees on mineral resources is problematic. Generally speaking, the rent obtained by the owner of mineral resources based on their ownership rights is referred to as “royalty.” The rent collected by the government through its political authority is called tax and fee. However, in many countries—including China—mineral resources are owned by the state; thus, both the political authority and ownership rights over these resources vest in the government. From the perspective of tax types, resource tax should be levied on the owners of mineral resources. Yet in China, the government itself is the owner of mineral resources. Consequently, it is logically inconsistent for the government, acting on the basis of its political authority, to levy a resource tax on itself. On the other hand, it makes sense for the government—as the owner of mineral resources—to collect royalties from those who extract these resources. In China, where mineral resources are state-owned, the “natural value of the minerals” and the surplus value they generate can be recovered by the government when mining rights are transferred. It is both contradictory and unnecessary for the government to impose taxes on itself or for a governing body to tax the government that serves as the owner. Hence, whether viewed from the perspective of practical collection or from a theoretical standpoint, there is a clear need to reform the resource tax system.
3. Guided by the Scientific Outlook on Development, we will establish a new mechanism for compensating for mineral resources.
Currently, the entire Party and the people across the country are deeply engaged in studying and practicing the Scientific Outlook on Development. The Scientific Outlook on Development has development as its primary guiding principle, people-centeredness at its core, comprehensive, coordinated, and sustainable development as its fundamental requirement, and overall planning and balanced consideration as its fundamental approach. To build a socialist market economy with Chinese characteristics, we must use the Scientific Outlook on Development to coordinate the relationship between central and local interests, balance resource conservation with resource security, and comprehensively build a moderately prosperous society. Under the guidance of the Scientific Outlook on Development, we must further liberate our minds, foster innovation, and establish a new, scientifically sound mechanism for compensating mineral resource users throughout the processes of tax collection, allocation, and utilization.
(1) Establish a scientific and rational collection mechanism.
1. Merge the existing taxes and fees on major mineral resources and establish a royalty system.
Since the theoretical basis for the current mineral resource compensation mechanism—including resource taxes, resource compensation fees, and fees for the use of prospecting and mining rights—is rooted in both the theory of ground rent and the theory of depletable resources, it is recommended that the resource tax, resource compensation fee, and fees for the use of prospecting and mining rights—currently collected by the government in its capacity as the owner of natural resources—from mining enterprises be consolidated into a single charge called “royalty.” At the same time, different types of mineral resources should be distinguished, and the fee rates for this royalty should be appropriately increased to reflect both the absolute ground rent and differential ground rent of mineral resources, as well as their depletable nature. The main rationale behind this proposal rests on the following four considerations:
First, in theory, the rent obtained by mineral resource owners based on their ownership rights is referred to as “royalty.” On the other hand, the rent collected by the government through its political authority is categorized as taxes and fees. Therefore, the theoretical basis for levying a royalty on mining enterprises is sound and well-founded. Moreover, from the perspective of intended use, the current resource compensation fees are primarily allocated to mineral exploration and to the development of new technologies aimed at identifying alternative resources. Both in theory and in practice—in countries that have already implemented a royalty system—the primary intended uses of the “royalty” earned by mineral resource owners based on their ownership rights are consistent. Hence, it is evident that consolidating these charges into a single levy would facilitate a clearer understanding of the underlying principles of the resource compensation mechanism.
Second, when mining enterprises exploit mineral resources owned by the state, the primary relationship that needs to be regulated between the state and the mining enterprises is the property rights and property relations. Implementing a royalty system is the optimal choice for regulating this relationship. Since the royalty system represents the state’s fundamental participation, in its capacity as owner, in the distribution of revenues generated from resource development—and since it reflects both the absolute ground rent and differential ground rent of the resources—it should be levied on all types of mineral resources. At the same time, by setting different royalty rates for various minerals according to their importance and scarcity, the royalty system can effectively capture the depletable nature of mineral resources, thereby ensuring that the state’s ownership over these resources is economically viable. In this way, not only are users of depletable resources required to pay their opportunity costs, but also the costs of collection are reduced, and transaction costs are saved. This approach not only helps correct theoretical biases but also simplifies administrative procedures, making it a superior choice.
Third, implementing a royalty system is conducive to the development of the mining economy. In theory, “royalties” are unrelated to the profitability or losses of mining enterprises; they represent an essential expense that must be paid. However, when mineral prices decline, royalties can play a certain regulatory role. This is because the government can stipulate that, during the early stages of mine operation and in the later stages of production, mining enterprises may pay lower royalties or defer payment altogether, thereby turning royalties into an economic regulatory lever for mining development.
Fourth, an appropriately set royalty rate can prevent mining enterprises from wasting mineral resources. As long as the collection rate is appropriate, mining enterprises will strive to fully exploit and recover mineral resources, thereby maximizing their overall revenue.
2. Scientifically determine the royalty collection rate.
The royalty system serves as the foundation of the paid-use system for resources and, in essence, functions as a policy instrument. At different stages of economic development, the state can adjust the royalty rates for mineral resources to regulate the operation of the mining economy and ensure its coordination with the overall national economy. The intensity of royalty collection for mineral resources should be determined based on various factors, including differing mining conditions, varying resource abundance, diverse resource quality, distinct geographic locations, market demand for mineral resources, prices of these resources, the extent of environmental damage caused by their extraction, and the broader macroeconomic development situation of the country. Drawing on international practices regarding royalty collection rates, China’s royalty rates typically range from 3% to 8%, with special mineral types potentially subject to rates as high as 18%.
3. The royalty shall be collected by the department in charge of mineral resource management.
The royalty is collected by the national mineral resources administration, which represents the state’s ownership rights. With the exception of setting aside a certain proportion of the royalty to cover necessary expenses incurred during the specific collection process, the entire royalty is remitted to the central treasury and incorporated into national budget management.
4. Establish scientifically sound collection procedures and methods.
In the specific implementation process, an appraisal entity with appropriate qualifications should assess and determine the rate of royalty collection for mineral resources based on the royalty collection function. Subsequently, the relevant government collection and administration authorities (typically the Bureau of Land and Resources) will collect the royalties following a prescribed procedure.
Drawing on foreign experience in the collection of royalties, China can adopt different collection methods for royalties depending on the type of mineral resource. For mineral resources such as construction materials and other non-metallic minerals, as well as bulk non-metallic mineral resources like coal, royalties can be levied based on total output. For high-value mineral resources—such as oil, gas, and metallic minerals—royalties can be collected on a value-based basis. For certain large-scale, extra-large-scale, and strategically significant mineral deposits—such as protected mineral resources like tungsten and rare earths, as well as extra-large strategic mineral resources—special collection methods may also be prescribed.
5. Establish a resource compensation collection mechanism linked to reserve depletion, and gradually introduce a floating-rate system tied to the level of resource utilization.
The “Notice of the State Council on Comprehensively Rectifying and Standardizing the Order of Mineral Resource Development” issued in 2005 stipulated, “Adjust the existing system of mining taxes and fees, and actively explore policy measures linking the collection of mineral resource taxes and fees to the rate of reserve depletion.” Currently, the Ministry of Finance, together with the Ministry of Natural Resources, is studying and refining the policy on compensation fees for mineral resources. The basic approach is to follow the principle of “phased implementation and gradual alignment,” taking into account comprehensively the progress of paid use of resources and resource tax reform, as well as the affordability of mining enterprises. The plan is to gradually adjust the rates of mineral resource compensation fees in stages and establish a floating fee system linked to the level of resource utilization. To this end, it is recommended that the levels of mineral resource consumption and comprehensive utilization be incorporated into the construction of a new mechanism for mineral resource compensation, thereby establishing a dynamic collection mechanism that is linked to the mineral product market, tied to mineral resource consumption, and correlated with the level of resource utilization.
(2) Establish a scientific and rational allocation mechanism.
1. Establish a reasonable mechanism for the allocation of mineral resource revenues between the central and local governments, ensuring that community residents in mining areas receive fair compensation and benefits.
Currently, China’s mineral resource compensation fee is allocated under a system in which the central government and provincial-level municipalities share the revenue at a ratio of 5:5, while the autonomous regions inhabited by ethnic minorities receive a 4:6 split. Meanwhile, the portion of the mineral resource compensation fee allocated to the central government is entirely returned to local authorities through various projects, earmarked for expenditures related to local mineral exploration, protection, and other relevant activities. To further support the development of regions where mineral resources originate and to enhance local enthusiasm, the newly established mineral resource development compensation mechanism should place greater emphasis on localities and less-developed areas. In particular, residents living in mineral-rich regions should receive more substantial compensation and benefits, while the ecological environment surrounding mining sites should also be restored and rehabilitated. It is recommended that the allocation ratio of mineral resource revenues between the central and local governments be adjusted to 2:8. Furthermore, the revenue-sharing ratios at the provincial level and below—namely, at the prefectural, municipal, and county levels—should also be rationalized, enabling townships where minerals are located to seize greater development opportunities and gradually improve the livelihoods of local residents.
2. Establish a compensation mechanism in which the development of mineral resources supports and supplements geological exploration, thereby enhancing the effectiveness of public-interest geological work in driving commercial exploration activities.
The royalty payments should, for the most part, be earmarked for specific purposes, with a particular emphasis on public-interest geological work. By leveraging this public-interest geological work, we can stimulate the exploration of commercial mineral resources and the development and utilization of alternative resources, thereby compensating for the depletion of existing resources. In doing so, we not only meet the current generation’s needs for mineral resources to support economic and social development but also leave behind a wealth of resources for future generations.
3. Establish a compensation mechanism for the comprehensive utilization of mineral resources to enhance enterprises’ intrinsic motivation to conserve energy and resources.
Currently, the unreasonable standards for resource taxes and fees in China have not only become one of the major factors contributing to the widening income gap and uneven distribution of income in China, but have also further intensified the resource and environmental pressures facing China’s economic development. Moreover, these standards fail to encourage enterprises to proactively conserve energy and resources. Scientifically establishing a new compensation mechanism for mineral resources involves, first, setting up a dynamic taxation system at the collection stage that is linked to the level of mineral resource exploration and utilization. At the allocation stage, we can establish a comprehensive utilization fund for mineral resources, providing policy and fiscal-tax support for the integrated utilization of co-associated mineral resources, low-grade ores, lean ores, and solid wastes such as tailings. This fund will also support technological research and development aimed at promoting the comprehensive utilization of mineral resources, implement pilot demonstration projects for the integrated utilization of mineral resources, and thereby drive the development of the integrated utilization industry for mineral resources.
4. Establish a compensation mechanism for ecological restoration in mining areas, restoring the beautiful living environment of green hills and clear waters to these regions.
The prominent environmental issues arising from mining development—such as land, air, and water pollution and degradation, as well as geological hazards—severely impact the daily lives, health, and even the lives and property of residents in mining areas and their surrounding communities. These issues have led to severe damage to mining ecosystem integrity, threatened biodiversity, and adversely affected economic development not only in mining regions and their immediate surroundings but also nationwide. Therefore, it is imperative to establish and improve a sound mechanism for environmental restoration and compensation in mining areas to address the aforementioned problems inherent in mining economic activities.
Drawing on the experiences of developed countries, establishing a comprehensive system of mine environmental restoration deposits is an essential condition for building a mechanism to compensate for mine environmental restoration. When applying for a mining permit, the entity responsible for mineral development must simultaneously submit a mine closure and restoration plan and pay a specified amount as a mine environmental restoration deposit. If a mining company fails to carry out the necessary remediation of the mined site, the government will draw upon the deposit and entrust other engineering agencies to implement the reclamation work. Should the mining company neither pay the deposit nor undertake the reclamation efforts, the competent mining authority may also terminate its mining operations, thereby inflicting substantial economic losses on the company. Furthermore, abroad, mine reclamation funds play a significant role in restoring the ecological environment of mining areas. For instance, in the United States and Canada, mine reclamation funds not only consist of large-scale deposits but also include donations from individuals, corporations, and various organizations, late-payment penalties, fines, administrative fees, profits generated from investments, and interest earned on the fund itself.
In China’s efforts to restore mine environments, we should draw on these beneficial practices, actively promote the establishment of mine environmental restoration deposits and mine environmental restoration funds, and improve the mechanism for compensating for mine environmental restoration. In February 2006, the Ministry of Finance, the Ministry of Natural Resources, and the State Environmental Protection Administration jointly issued the “Guiding Opinions on Gradually Establishing a Responsibility Mechanism for Mine Environmental Governance and Ecological Restoration,” which, guided by the principle of “whoever damages shall restore,” clearly defines the environmental governance responsibilities of enterprises. Mining enterprises are required to set aside, on an annual basis, a certain proportion of their revenue from mineral product sales as a mine environmental governance and restoration deposit, which is then included in their costs. For historically accumulated mine environmental governance issues, we should learn from foreign models of mine environmental restoration funds. In addition to collecting substantial mine environmental restoration deposits from existing mines, the mine reclamation fund should also include donations from individuals, corporations, and various organizations, late-payment penalties, fines, administrative fees, profits generated from investments, and interest earned on the fund. Furthermore, the government must formulate comprehensive mine-environment governance plans, allocate part of the royalties collected by the government to these plans, and intensify efforts in mine environmental restoration and the prevention and control of geological hazards. By transferring the risks and rights associated with mineral resources within specific areas to enterprises, we can avoid the drawbacks of shifting such burdens onto businesses. It is crucial that the state maintains full control over the disposition of mineral resources, ensuring that all rights—including ownership, usage rights, revenue rights, and disposal rights—of mineral resources are fully realized and exercised by the state.
The royalty collection mechanism, which links royalties to the mineral product market, ties them to the depletion of mineral reserves, and aligns them with the level of resource utilization, embodies the essence of compensation, reduces collection and management costs, encourages mining right holders to improve resource recovery rates, and is consistent with the nation’s fundamental policy of conserving resources. It fully takes into account the differences in resource endowment among various mining areas, genuinely reflects social equity, eliminates excessive profit expectations in mining, and promotes the long-term stability and sound development of the mining industry.
The royalty system, which involves the centralized collection of fees through state-mandated measures and their subsequent allocation among prospecting right holders, localities where mining areas are located, and owners of mineral resources, ensures that all stakeholders receive adequate compensation. This mechanism not only guarantees the effective implementation of the mineral resource compensation policy but also provides policy support to encourage prospecting right holders to make efficient investments in mineral exploration and mining right holders to exploit and utilize mineral resources effectively. Moreover, it serves as a policy safeguard for localities where mining areas are situated, helping them protect the ecological environment, uphold equity among regions, and promote the sustainable development of the mining industry.
IV. Conclusion
Replacing the current resource tax, resource compensation fee, exploration right usage fee, and mining right usage fee with a royalty fee addresses the issue of unclear distinctions among these fees. It also overcomes the practice of blindly auctioning off exploration and mining rights based on guesswork, given the lack of a clear inventory of mineral resources.
References
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[7] Notice of the State Council on Comprehensively Rectifying and Standardizing the Order of Mineral Resource Development (Guofa [2005] No. 28)
[8] Ministry of Finance, Ministry of Natural Resources, and State Environmental Protection Administration. Guiding Opinions on Gradually Establishing a Responsibility Mechanism for Mine Environment Remediation and Ecological Restoration (Cai Jian [2006] No. 215)