(1) Geological exploration investment has been declining year by year, and social funding is rapidly shrinking.

After experiencing a golden decade in the geological exploration industry, China’s national investment in non-oil and gas geological exploration reached its peak in 2012, totaling 51 billion RMB. Of this amount, about 21.7 billion RMB came from fiscal funds, while social capital accounted for roughly 29.3 billion RMB. Starting in 2012, as the global economic crisis deepened, the mining sector’s situation deteriorated sharply. Consequently, the geological exploration industry faced an even more rapid downturn. By 2015, the nation’s total investment in geological exploration had fallen to 32.61 billion RMB, a 36% decrease from the 2012 level. Social capital investment plummeted to 16.16 billion RMB, representing a 45% drop compared to 2012. The geological exploration industry quickly entered a harsh winter.

Trend in National Non-Oil and Gas Geological Exploration Investment from 2010 to 2015

(Data source: China Mineral Resources Report 2011-2015, website of the Ministry of Natural Resources)

(2) Geological exploration labor productivity has been trending behind the nation’s overall labor productivity.

Before 2011, as geological exploration investment rapidly increased, labor productivity in the geological exploration industry also rose quickly. In 2011, per capita geological exploration investment reached a historical peak of 98,800 yuan, after which it began to decline year by year. Meanwhile, the nation’s overall labor productivity maintained a steady growth trend. After 2012, the gap between national labor productivity and that of the geological exploration industry gradually narrowed, and by 2015, national labor productivity had finally surpassed that of the geological exploration industry. In 2012, the national average labor productivity per employee was 58,700 yuan per person, 31% lower than that of the geological exploration industry. In 2015, the national average labor productivity per employee rose to 77,000 yuan per person, exceeding that of the geological exploration industry by 17%.

Considering that the geological exploration industry will enter a downturn in the coming years, per capita investment in geological exploration will trend behind the nation’s overall labor productivity. The days when the geological exploration industry was a high-income sector with lucrative prospects are over; in the foreseeable future, it will appear before the public as a tough and challenging profession.

Comparison of the Geological Exploration Industry with National Total Labor Productivity from 2010 to 2015

(Data source: Compiled based on the Statistical Yearbook of Land and Resources and the National Economic and Social Statistics Bulletin)

(3) Per capita compensation at geological exploration units has reached an inflection point and will continue to lag behind the average wages of urban employees nationwide for the long term.

Before 2012, the per capita compensation of employees in China’s geological exploration units grew at the same pace as the per capita wages of employees working in urban units. However, the absolute level of per capita compensation in geological exploration units significantly exceeded that of urban units. From 2012 to 2014, the growth rate of per capita compensation in geological exploration units slowed down, while the per capita wages of urban employees gradually approached the income levels of geological exploration units.

In 2015, the average annual salary per employee in urban enterprises nationwide was 62,100 yuan, whereas the average compensation for employees in geological exploration units—optimistically estimated—was only around 55,000 yuan (and could actually be even lower). The average compensation per employee in geological exploration units reached a peak of 61,500 yuan in 2014, but is expected to remain below this level for the foreseeable next few years. Meanwhile, the overall national income level has been steadily rising, causing the geological exploration industry to fall from being a high-income sector to a low-income one.

Comparison of Per Capita Income Between In-Service Personnel of Geological Exploration Units and Urban Units

(Data source: Compiled based on data from the National Bureau of Statistics and the 2011-2015 Statistical Yearbook of Land and Resources)

(4) The global geological exploration industry has been in a prolonged period of low-level adjustment.

Global (non-ferrous) exploration spending is closely linked to metal prices and generally lags behind by 1–2 years. Since 1995, metal prices and exploration spending have each experienced two complete troughs. The first trough was followed by a prolonged recovery driven by China’s industrialization, as the market adjusted once again to reach supply-demand equilibrium. The second trough, by contrast, saw a swift recovery spurred by major economies led by China.

Graph of the Relationship Between Global Exploration Spending and Metal Prices

(Graph source: S&P Global: World Exploration Trends 2016)

Currently, global prices of major metals are at a stage of bottoming out and rebounding, which may give some people the illusion that the mining industry is recovering. In reality, this round of stock price recovery is largely driven by a rebound from overselling and differs significantly from the economic recovery of 2009; thus, the room for further recovery is limited. This mining downturn cycle may well last longer than the trough experienced in the late 1990s. The main reasons are as follows:

1. China’s economy is undergoing a transformation, and resource demand has already peaked.

2. Emerging economies lack sufficient growth momentum, and no country can yet step in to take over China’s demand.

3. The international situation remains turbulent and is facing major divisions and restructuring, casting a shadow over economic recovery.

4. Major mining companies, in an effort to boost revenue and further expand production capacity, are caught in a vicious cycle as falling prices exacerbate the situation.

In short, given the broader context of a global downturn in mining and geological exploration investment, it will be difficult for exploration spending to rebound in the short term. Only after a prolonged period of spontaneous market adjustments—during which excess capacity is gradually eliminated—can the global geological exploration industry hope to recover. In an even more pessimistic scenario, the industry could also face risks of international turmoil or even war.