The reform of the resource tax was one of the hotly debated topics among deputies and members during this year’s “Two Sessions.” Some people even said that the reform plan would be unveiled this year. This round of resource tax reform was initiated back in 2006. At that time, mineral prices soared, making the mining industry extremely popular and attracting investment from all sectors. Some companies reaped enormous profits, thus sparking strong calls for a substantial increase in taxes and fees on mineral resources. But today, the global mining landscape has reversed: mineral prices have plummeted, and mining enterprises are struggling to stay afloat. China’s mining sector is also facing a harsh winter. Just recently, during the value-added tax reform, only the mining industry saw its tax rate raised, leaving some mining companies feeling as if they were already suffering enough. Now, with plans to broadly and significantly raise taxes and fees on mineral resources once again, it’s hard to see this move as “timely.” Rather, it seems more like a case of reverse regulation.
　　From the turn of the century through the second half of 2003, the mining industry experienced a period of severe downturn and hardship. The geological and mining sectors called for increased government investment and relief from burdens on the mining industry to support its development. Unfortunately, however, the concerted introduction of supportive policies did not come at the right moment—like "offering coal in the snow." This clearly demonstrates that the timing of regulatory policy implementation is particularly crucial. As the competent authority responsible for mining administration, the Ministry of Natural Resources should treat the timing of key regulatory policies for the mining industry with utmost seriousness.
　　In March of this year, a certain media outlet published a signed article reporting on the heated discussions among deputies and members of the “Two Sessions” regarding the reform of the resource tax. The article cited several views—such as “the resource tax reform will not significantly affect enterprises’ overall tax burden,” “the resource tax reform is perfectly timed in the context of the financial crisis,” and “the resource tax reform will promote the efficient and intensive use of resources”—which left the author thoroughly puzzled. As for raising taxes and fees on mineral resources, I have indeed conducted research showing that such an increase would raise the industrial cut-off grades for ore deposits, thereby reducing the proven reserves of mineral resources.
　　The economic activities of mining enterprises also adhere to the financial accounting balance formula that reflects operational performance: revenue minus expenses equals profit. These three elements have a complementary and mutually reinforcing relationship. According to the financial model described on page 63 of the "China Mining Rights Valuation Standards," net profit equals sales revenue minus total costs and expenses, sales taxes and surcharges, and corporate income tax. Given the high-risk nature of the mining industry, its net profit level should slightly exceed the average social rate of return. This should be one of the guiding principles consistently upheld by macroeconomic regulation; otherwise, it could give rise to numerous economic and social problems. When mineral prices soar and sales revenue rises sharply while total costs and expenses remain relatively stable, leading to a substantial increase in corporate net profit—even to the point of extraordinary profits—raising mineral resource taxes and fees to stabilize net profit levels would be a reasonable regulatory approach. Conversely, when mineral prices plummet and sales revenue plummets, raising mineral resource taxes and fees would compel mining enterprises, in order to maintain their net profit levels and ensure survival and development, inevitably to cut back on total costs and expenses. In the absence of fundamental improvements in technological and management capabilities, the only way to reduce total costs and expenses is by elevating industrial indicators for ore deposits—selecting high-grade ores while discarding low-grade ones, and ultimately resulting in the wasteful exploitation of mineral resources.
　　The industrial indicators for ore deposits represent the most distinctive management component in China's mineral resource reserve administration, embodying profound technical and economic evaluation principles. On November 16, 1992, the State Administration of Mineral Reserves and the State Administration of State-owned Assets jointly issued the "Interim Measures for the Management of Ore Deposit Industrial Indicators" (Document No. [1992]210 of the State Reserve Administration), which explicitly stated in Article 1: "Mineral reserves are state-owned assets, and ore deposit industrial indicators serve as the criteria for defining mineral reserves. To strengthen the management of mineral reserves, adapt to the needs of the socialist market economy, safeguard the state’s ownership rights over mineral reserves and the mining enterprises’ right to use them, and enhance the economic, social, and resource benefits of mineral exploration, development, and utilization, these Measures are hereby formulated." Article 4 specifies the procedures for establishing and submitting for approval the industrial indicators used in preparing exploration reports for mine construction; it also stipulates that for mines without a designated supervisory authority, the industrial indicators, after being substantiated, shall be issued by the mineral reserve management authority. Furthermore, it provides that general surveys and detailed surveys not intended for mine construction may, by reference to the "Reference Manual of Mineral Industry Requirements" (commonly known as the "Green Book"), have their industrial indicators determined by the competent geological survey authorities. The "Interim Measures for the Management of Ore Deposit Industrial Indicators" also lays down clear provisions regarding the revision, dynamic application, arbitration, and supervision of industrial indicators.
　　Some outsiders fail to grasp the economic and technical significance of China’s industrial indicators for mineral deposits, treating the “Green Book” as an immutable “national standard.” They then criticize China’s standards for lacking an economic perspective and a forward-looking vision. Regrettably, some insiders have also echoed these outsiders’ misconceptions. Not to mention that, vertically, as technology advances, industrial indicators for mineral deposits—such as the minimum industrial grade and cut-off grade for copper and gold—are gradually being lowered. Horizontally, moreover, China has never had nationwide, uniform industrial indicators; rather, each mine has its own specific set of standards, carefully tailored to take into account the varying resource endowments and differing external development conditions of each deposit, thus embodying profound and concrete economic implications. □
　　In addition to natural factors such as transportation and geographic location, the external development conditions of mineral deposits—including mineral prices and tax policies—are also decisive factors in setting industrial benchmarks. For metallic minerals, the most sensitive factor is the grade threshold. Take lead-zinc ores as an example: during the planned economy era, the minimum industrial grade was 1% to 2%; from 1998 to 2003, it rose to about 5% to 6%; from 2004 to 2007, it was 2% to 3%. Since the fourth quarter of 2008, ores with grades below 5% generally cannot be developed normally. Preferential tax and fee policies can attract enterprises to invest in low-grade, difficult-to-process mines; conversely, tightening tax and fee collection may force mining companies to raise their minimum industrial grade requirements, effectively excluding certain low-grade ores from mining altogether. For layered sedimentary deposits such as coal and phosphate rock, the boundaries between the roof and floor strata are sharply defined, making it difficult to distinguish low-grade ores. Thus, raising industrial benchmarks essentially targets the minimum mineable thickness. In China’s northern coalfields, the typical minimum mineable thickness is 0.8 meters. When prices are low or taxes and fees become excessively burdensome, some mines simply abandon coal seams that are about 1 meter thick. While some of these abandoned low-grade ores and thinner ore layers might be reclaimed when market conditions improve, most will remain permanently unmined due to “overlying strata” constraints. Therefore, the reform aimed at increasing resource taxes and fees—claiming that it will “promote the efficient and intensive use of resources”—does not hold water from a geological and mining technology standpoint.
　　In 2002, the state abolished the approval process for industrial indicators of mineral deposits. However, the “Interim Measures for the Management of Industrial Indicators for Mineral Deposits,” jointly issued by the State Administration of Mineral Reserves and the State Administration of State-owned Assets (Document No. [1992]210 of the National Reserve Administration), continues to be included in the “Compilation of Regulatory Documents on Mineral Resource Reserve Management,” published in 2007 by the Earth Publishing House and compiled by the Department of Mineral Resource Reserves and the Mineral Resource Reserve Evaluation Center of the Ministry of Natural Resources. In the “Handbook of Mineral Resource Reserve Management in Hebei,” published by the Geological Publishing House in 2007, the section on procedures for establishing industrial indicators for mineral deposits still relies on Document No. [1992]210 as its basis. When some actors in the mining rights market have begun manipulating industrial indicators to misappropriate state-owned assets, many knowledgeable individuals have called for strengthening the management of industrial indicators for mineral deposits. In 2007, the Ministry of Natural Resources launched a project titled “Research on the Technical Standard System for Mineral Resource Reserve Management.” On November 13, 2008, the China Natural Resources News published an article by the project’s chief researcher entitled “Several Fundamental Issues Concerning the Implementation and Revision of Mineral Resource/Reserve Standards.” The third issue raised in this article calls for “rebuilding the mechanism for forming industrial indicators.” The article points out: “Mineral bodies are delineated based on industrial indicators; if the determination of these industrial indicators is unclear, the resulting estimates of mineral resources and reserves will inevitably lack precision and become arbitrary.”
　　Based on the above discussion, the author proposes two suggestions:
　　First, the reform of mineral resource taxes and fees is crucial to the better and faster development of the mining industry as well as to the nation’s overall strategy for ensuring and protecting its mineral resources. From the Ministry of Geology and Mineral Resources to the Ministry of Natural Resources, numerous research findings have been produced on this issue. At this critical juncture of reform, the authorities responsible for mineral resource management must fully exercise their right to speak regarding the direction and timing of the reform, and the media should also give greater publicity to the positions put forward by the Ministry of Natural Resources.
　　Second, the Ministry of Natural Resources, in participating in the macro-regulation of mineral resources, should fully leverage its strengths in expertise and technical knowledge related to geology and mining, as well as its deep understanding of geological principles. Effective technical management documents should not be hastily abolished.