Abstract: Against the backdrop of the global financial crisis, Chinese mining enterprises, guided by the banner of “going global,” have repeatedly made significant moves overseas. Under the combined pressures of domestic and international political, economic, and social factors, overseas exploration and development investments have yielded mixed results—both successes and challenges. This article, primarily set against the context of the financial crisis, addresses the difficulties faced by China’s overseas mineral exploration and development efforts and proposes strategic recommendations for China’s overseas investment activities.
Keywords: Mineral Resources, Overseas Exploration and Development, Strategy
The global mining industry has reversed its six-year-long upward trend, with conditions taking a sharp turn for the worse starting from the third quarter of 2008. Demand for mineral products has declined, and with the exception of a few minerals such as gold and potash, global prices for oil, gas, coal, and metals have plummeted significantly. The stock index of the Toronto Venture Exchange—dominated by junior exploration companies—and the Toronto Stock Exchange & TSX Composite Index—led by mid- and large-sized mining firms—both fell by roughly half within just a few months. The market capitalization of mining company stocks has shrunk dramatically, with many plunging to all-time lows. As a result, many mining companies are facing intense financing pressures. Some mining enterprises have been unable to repay maturing debts and are now considering selling their companies or mining assets at bargain prices, or seeking external joint ventures and partnerships. According to a survey conducted by the Fraser Institute, a renowned Canadian mining consultancy, among the CEOs of 658 mining companies, more than 80% believe that at least 30% of exploration companies will be forced to exit the mining industry during this economic downturn, while 40% of CEOs anticipate that over 50% of exploration companies will be compelled to leave the industry.
The financial crisis has dealt a blow to the mining industries in several countries. Since the outbreak of the global financial crisis and its impact on the real economy, international market prices for bulk mineral commodities such as aluminum, copper, lead, and zinc have plummeted. Many mines have been forced to cut production or shut down due to operating losses, and mining companies’ stock prices have declined. A large number of mining firms are facing fiscal crises and experiencing difficulties in raising capital on the financial markets, prompting them to sharply reduce their exploration and development budgets. Many companies are considering selling off assets or mining sites at discounted prices, or seeking external joint ventures and partnerships. According to data from PwC, between July and November 2008, affected by the financial crisis, the market capitalization of the world’s top 100 primary mining companies listed on the Toronto TSX Venture Exchange fell by 77%, and the number of global industrial mergers and acquisitions in the fourth quarter declined by 61%. Several major mining companies are preparing to sell off assets in order to cut costs, reduce debt, and seize opportunities to acquire assets or merge through diversification strategies. The mining economies of countries including the United States, Canada, Australia, India, Indonesia, the Philippines, and Tanzania have all entered a downturn.
Against the backdrop of the financial crisis, Chinese mineral resource enterprises have seized the opportunity to significantly increase the scale and intensity of their overseas investments. According to our statistics, since 2008—including proposed deals—China has undertaken 78 overseas mining mergers and acquisitions, with a total value involved reaching 73.3 billion U.S. dollars. Amidst the global economic downturn, Chinese mining companies have demonstrated an attitude of “having no shortage of funds,” drawing widespread attention from international public opinion, the mining industry, and the governments and citizens of the target countries for these acquisitions. Reactions have ranged from indifference and skepticism to outright admiration and resistance. Although Chinese officials have publicly denied that the government provides financial support for overseas M&A activities, the "China Steel Industry Revitalization Plan" mentions that China will use special government funds to encourage enterprises to invest in overseas resources. Statements made by Chinese companies—such as “The government is providing us with funding,” “The government is supporting our acquisitions,” and “We’re currently piloting this approach; once the pilot proves successful, we’ll have even more U.S. dollars”—have been widely cited by international media. In an article titled “The ‘Truth’ Behind Chinese Companies’ Overseas Investments,” the British Financial Times pointed out: “Today, no matter which acquisition battle or asset sale deal is still pending, outsiders are already speculating about the possibility of Chinese bidders.”
I. The Dilemma Facing Investment in Overseas Mineral Resource Exploration and Development
Currently, the scale of overseas exploration and development investments by China's mining enterprises is steadily expanding, yielding positive results. However, given the numerous pressures faced by China's overseas exploration and development investments, mineral resource exploration and development companies are confronted with a range of unfavorable external and internal conditions. Enterprises planning to invest abroad need to prepare in advance. The primary external challenges include: during their overseas exploration, development, and M&A activities, Chinese enterprises face various pressures from the host country—including those from governments, corporations, local communities, and the media; intense competition from powerful multinational mining companies; and rivalry from resource-demanding countries such as Japan and India. The main internal challenges stem from superficial government coordination that lacks genuine coherence; the overall strength and capabilities of exploration and mining enterprises remain relatively weak, lacking the capacity for sustainable development; lack of coordination between the government and enterprises, as well as among enterprises themselves; and an incomplete supporting infrastructure system. These issues are reflected in the following points.
1. The siege of international public opinion
Since China announced its “Going Global” strategy, it has consistently found itself at the center of international public opinion. Following the financial crisis, Chinese resource enterprises have stepped up their overseas investment efforts and scaled up their operations, drawing even wider attention and commentary from the global media. Take, for example, the entry of Chinese state-owned enterprises into Australia to discuss resource mergers and acquisitions: Comments such as “It’s extremely dangerous for Chinese entities to gain control over Australian companies and resources,” “China will nationalize Australia’s mining assets,” “Today Chinalco controls Rio Tinto; tomorrow it will evolve into a Chinese state-owned investment company that controls our highways, public transportation, or private water utilities,” “With Chinalco as its tool, the Chinese government’s interference will not stop here,” “Australia has never allowed government funds to take control of mining projects,” “Beijing is turning Australia into an economic branch office of China,” and “This isn’t just a matter of foreign investment—it’s about allowing another country’s government to hold stakes in Australia’s resources”—have flooded the media. Even Australia’s best-selling newspaper, The Australian, has set up a special column titled “Say No to Chinalco.” Some have even described the Chinese government’s support as a “big red checkbook.” Meanwhile, Western countries, amid the increasingly heated Sino-African cooperation, have been spreading rhetoric portraying China as practicing neo-colonialism.
2. Investments in developed countries are facing resistance or are being subjected to stringent conditions.
The investment environments in developed countries such as Australia and Canada are relatively clear, transparent, and stable. In recent years, these countries have annually organized government lobbying missions, hoping that Chinese exploration and development companies will invest in their territories. Even after Chinalco’s acquisition of Rio Tinto was rejected, the Australian government continued to publicly promote and welcome Chinese mining enterprises to invest there. However, judging from the recent activities of Chinese companies in exploration, development, and mining mergers and acquisitions in these countries, these developed nations are by no means a paradise for mining investments.
Following the rejections by the U.S. and Canadian governments in 2005 of CNOOC’s investment in Unocal and China Minmetals’ acquisition of Noranda, respectively, this year’s highly publicized proposed takeover of Rio Tinto by Chinalco was also rejected by the Australian government. Moreover, recently, every single investment case involving Chinese companies such as China Minmetals and Hualing in Australia has faced delays in processing. Although, under pressure from various parties, Hualing’s acquisition of FMG was approved on March 31, and China Minmetals’ deal was finally approved on April 24, both acquisitions were accompanied by stringent conditions.
Recently, several Chinese acquisitions in Australia have been accompanied by stringent conditions. For instance, China Minmetals acquired assets from Australia’s 02 Minerals for US$1.206 billion. In return, the Australian side imposed a series of “legally binding commitments” on Minmetals, including a promise to operate these mines independently, to continue maintaining Australia as its headquarters and to rely primarily on Australian personnel for management. Additionally, all product prices must be set according to fair principles, with Australian sales staff referencing international standards. In the Hualing acquisition case, the Australian government directly stipulated that the Hunan Hualing representative appointed to Fortescue’s board would be restricted from accessing documents that could potentially influence iron ore trade negotiations held annually. Australia insists that, as a state-owned enterprise, Hualing must maintain a clear distance from China’s national interest—namely, the country’s relentless drive to keep iron ore prices as low as possible. In this round of Chinese investments in Australia’s mining sector, there is strong public sentiment in Australia calling for China’s resource industry to open up equally to Australian businesses. In the ruling on Ansteel’s investment, the Australian government insisted that Ansteel allow Gin-dalbie to retain a 50% stake in a Chinese investment project, while also prohibiting Ansteel from unilaterally altering this arrangement. Given these investments in the mining sector—where Chinese investors pay hefty sums yet wield little decision-making control—some have jokingly referred to them as “advance payments for mining rights.”
The West has historically placed great emphasis on democratic systems. Beyond government review of projects, the ultimate approval often hinges on a comprehensive assessment that takes into account the attitudes of various stakeholders—including corporate boards of directors, company employees, and public opinion. The approval process for projects also consistently adheres to the fundamental principle of harmony among a country’s political, economic, and social dimensions. For instance, the proposed acquisition of Rio Tinto by Chinalco was ultimately aborted after the Rio Tinto board of directors rejected the deal.
3. Projects in developing countries are facing various difficulties.
Unlike developed countries, many developing countries have explicitly expressed their welcome toward China’s state-owned enterprises. The main reason is that private enterprises in these countries have a poor reputation—after the financial crisis, they abandoned their businesses and fled. These countries view state-owned enterprises as more reliable. However, judging from the mining investment activities of Chinese mining companies in Africa and neighboring regions, they also face numerous uncertainties and relatively high hidden costs, which domestic enterprises need to pay close attention to.
First, there is the risk of political instability. In developing countries—especially those in Africa—the frequent changes in government, poor continuity in mining policies, and overall political instability mean that once a new administration takes office, mining projects may face renegotiation or even termination. Countries such as the Democratic Republic of the Congo and Guinea have both seen their mining contracts re-examined following the arrival of new governments. Chinese geological exploration units in Algeria and Thailand have also encountered situations where governments changed their stance, leading to project suspensions or the cancellation of agreements. Companies pursuing long-term projects should be particularly alert to this risk.
Moreover, certain countries exhibit a lack of transparency in their policies and suffer from rampant government corruption. Many of China’s overseas exploration projects are located in underdeveloped developing countries, where government corruption is particularly severe, and numerous exploration projects have been met with demands for bribes. In one particular country, the security fees alone demanded from Chinese geological exploration units exceeded 8 million RMB—nearly equal to the total cost of the entire exploration project. Some companies have spent over 5 million RMB yet still haven’t secured mining rights, leaving them in an impossible predicament. Furthermore, there are cases where companies have spent as much as eight years solely on applying for mining rights; due to local government corruption and deliberate delays, these projects remain stalled, resulting in serious waste of resources.
The second issue is the scarcity of basic geological data or the falsification of existing data. This problem is widespread among China’s geological exploration units investing in developing countries. Many projects have no choice but to start from scratch by compiling preliminary geological sketches. Moreover, in some countries, there are also instances of falsified government and corporate data.
Third, there is considerable uncertainty surrounding social licensing. In recent years, it has become a widespread trend—both in developed and developing countries—to explicitly stipulate that mining companies have social responsibilities under mineral resource legislation. When mining companies invest overseas, they are required to shoulder these social responsibilities. Even if they obtain government approval, they still cannot commence operations unless they also secure the consent of the local community. These aspects are largely unfamiliar to domestic enterprises. Obtaining the necessary permits often involves long and arduous negotiations between companies and local communities. For instance, China’s Zijin Mining Company experienced a protracted bargaining process during its copper mining project in a certain country.
Fourth, logistics and infrastructure are often inadequately supported. Many developing countries have flawed mining laws, and mining rights frequently come with defects. The educational level of the workforce is low, leading to inefficiency. There is a shortage of essential living supplies and geological exploration services. In some project areas, logistical support is simply unreliable, putting the personal safety of Chinese employees at risk. As a result, overseas projects undertaken by Chinese companies have increasingly experienced incidents such as staff kidnappings and violent assaults by local residents. In certain countries, infrastructure is extremely poor—roads, ports, and power facilities are all underdeveloped. Although these regions boast excellent geological conditions for mineral resources, there’s no capacity for extraction or transportation. Moreover, in many developing countries, the cost of living is exceedingly high; for example, in Angola, the cost of living and doing business is eight to ten times higher than in China.
Fifth, it is difficult to secure high-quality projects. Following the financial crisis, the market capitalization of exploration companies listed on the risk capital market plummeted, making their investment value apparent. As a result, China’s private capital and mining enterprises have seen an opportunity and are eager to get involved. However, trading in securities of these companies has virtually come to a standstill—there’s demand but no actual market. Thus, it’s not easy for investors to gain access to promising exploration companies. This situation is largely determined by the optimistic future expectations held by exploration firms and shareholders, as well as by the inherent characteristics of exploration itself. During the economic crisis, exploration companies were able to survive the “harsh winter” by cutting exploration budgets, building up cash reserves, and investing only the bare minimum in exploration activities to maintain their mineral rights.
The stock prices of some junior exploration companies have shrunk by 90% in just four months. Although some companies saw their stock prices rebound by the end of 2008, the recovery was relatively modest.
Sixth, China’s geological exploration units face institutional barriers when making overseas investments. According to the Ministry of Commerce’s “Administrative Measures for Overseas Investment,” public institutions engaging in overseas investment are required to follow enterprise investment management practices. However, when geological exploration units carry out foreign mineral exploration and prospecting activities, relevant authorities insist that these units must conduct overseas investments as enterprises. Even if this hurdle is cleared domestically, it remains difficult for public institutions to register mining companies abroad. Many countries require foreign investors to either establish a registered company within their borders or operate through joint ventures and cooperative arrangements before they can make investments. To facilitate obtaining exploration rights and conducting mineral exploration activities abroad, foreign enterprises have adopted various workaround strategies, taking into account both the specific regulations of the host country and the restrictions imposed by China’s state-owned asset management laws, as well as the limitations on foreign transfers of state funds. As a result, mining companies generally adopt one of two approaches: either establishing joint venture or cooperative enterprises with local partners overseas, or setting up subsidiaries in Hong Kong. Some chairpersons or general managers of state-owned enterprises have even registered themselves as individuals locally, thereby establishing several overseas subsidiaries of state-owned enterprises. Through these measures, some enterprises have managed to meet the investment requirements set by foreign countries; however, such practices also pose numerous risks, including issues related to property rights and the potential loss of state-owned assets.
Seventh, geological exploration units lack economic strength and have no access to financing, leaving some projects at risk of losing their mining rights. This situation is determined by the institutional structure of these units. Geological exploration units are constrained by fiscal appropriations and generally suffer from a lack of financial resources. As public-service entities, they are subject to state regulations governing public-interest institutions as well as financial legal frameworks that impose strict requirements on eligible entities. Consequently, they do not possess the legal status necessary to raise capital in the securities market, nor do they meet the criteria set forth by venture capital funds for investment. To participate in capital market financing, entities must be legal persons or natural persons capable of independently assuming civil liabilities—conditions that geological exploration units simply cannot satisfy. China’s banking system comprises specialized banks, policy banks, and commercial banks. Specialized banks are, in nature, also commercial banks. Commercial banks’ lending targets must be business-oriented enterprises with demonstrable economic income, assets whose value can be compensated and enhanced through prepayment, and sources of funds sufficient to repay both principal and interest. Entities that are non-business-oriented and lack economic income can only be recipients of fiscal appropriations and are thus ineligible for bank loans. According to the Guarantee Law, public-service institutions and social organizations—including schools, kindergartens, and hospitals—that operate primarily for public welfare purposes are prohibited from serving as guarantors. These regulatory provisions effectively exclude geological exploration units from many financing channels. Furthermore, certain institutional stipulations applicable to public-service entities, including the “Financial Regulations for Public-Service Units,” also determine that although geological exploration units may own independent, freely disposable assets, they do not possess independent or relatively independent legal personality.
Insufficient funding is a widespread challenge facing overseas mineral resource exploration in China. Most of the risk-based exploration and investment projects abroad, which began in 2005, have seen a significant gap between the funds provided by the central government and the expectations of enterprises as well as the actual outcomes of these projects. For the majority of overseas exploration investment projects, exploration efforts are limited to shallow-level geophysical surveys, geochemical surveys, trenching, and other regional, surface-oriented exploration methods—so-called "grassroots exploration projects." As a result, neither mining companies nor downstream smelting and processing industries are willing to provide bank loans for such projects. Moreover, geological survey institutions themselves face institutional constraints and lack effective channels for raising additional funds. Currently, some projects have gradually completed their preliminary work. To proceed with deeper drilling and detailed assessment of ore bodies, further funding will be required. The current capacity of the geological survey system dictates that substantial government investment is necessary; otherwise, geological survey institutions will find it extremely difficult to fulfill their exploration obligations, and the sustainability of the mining industry will be jeopardized.
Eighth, Chinese enterprises suffer from weak negotiation capabilities. In fact, Chinese mining companies lack strong soft power, which hinders their ability to obtain large volumes of timely information, leading to information asymmetry. As a result, they lack sufficient control when negotiating and maneuvering with foreign partners and are unable to confidently manage cooperation with foreign entities in project execution. Particularly in geological exploration units operating under the institutional framework, there is a lack of familiarity with international exploration practices; these units tend to approach foreign partners using familiar, inward-looking modes of thinking and often lack experience in independently conducting financing negotiations or negotiations on mineral resource cooperation, thereby suffering losses in their interests. Many enterprises simply “go abroad” without a clear strategy; some geological exploration units even treat overseas public-interest geological work as if it were akin to completing a domestic exploration project—considering the mere submission of a geological report as evidence that the exploration project has been successfully concluded. Moreover, these enterprises are unfamiliar with other factors that could affect economic feasibility, including political risks related to land, the environment, and local communities.
Ninth, many of these projects are located in regions with extremely harsh natural conditions. Chinese exploration companies started investing in overseas exploration and development relatively late. As a result, some promising projects have already been secured by host-country firms and other multinational mining companies. The projects in which Chinese mining enterprises have become involved are mostly situated in areas characterized by poor geographic locations, high altitudes, adverse climatic conditions, and inadequate infrastructure. Some of these projects even lack regular access to the work sites, requiring helicopters to transport personnel and supplies—a situation that drives up exploration costs per unit of work significantly compared to domestic operations. Moreover, certain projects are located in environmentally sensitive areas, posing challenges related to land-use permits, environmental approvals, and the associated risks to mining rights. In some work areas, there are still uncleared landmines and other hazards, making them extremely dangerous. Additionally, constrained by funding limitations, most of China’s overseas projects are at the grassroots exploration stage—projects whose probability of success is inherently low to begin with.
Tenth, mining enterprises are engaging in self-destructive competition overseas, and some privately-owned mining companies are suffering damage to their reputations. There is a phenomenon of clustering of mining enterprises abroad. Some private enterprises have been speculating on mining rights overseas; when the financial crisis struck, they fled without fulfilling their due obligations. State-owned geological exploration units are the main players in such overseas risk exploration investments. In addition, many other private enterprises—completely unfamiliar with the mining industry—have ventured overseas simply because the cost of acquiring mining rights in China is high, driven by a speculative mindset aimed at flipping mining rights for profit. Some mining officials in neighboring countries believe that certain Chinese enterprises aren't genuinely interested in conducting geological work; rather, they’re just waiting for the rights to appreciate in value so they can sell them off.

Eleventh, there is a lack of supporting measures and qualified personnel. Mining investments—especially those in underdeveloped countries—involve issues such as the clearance of equipment out of the country, the importation of samples, and the departure of technical personnel abroad. From the perspective of mining companies’ actual operations, it is difficult to obtain approval for the customs clearance procedures for construction equipment, and it is also challenging to transport equipment into the country. Visa procedures for domestic technical personnel traveling overseas are cumbersome and time-consuming. Channels for domestic geological exploration samples are not smooth. Customs does not recognize units undertaking overseas projects directly receiving samples back home. Moreover, the transportation of materials, equipment, and subsequent oil and mineral samples from overseas investments takes a very long time—typically three months—from loading and shipping to arrival at the port and final delivery to the destination. In addition, the state has strict foreign exchange controls, and the procedures for outbound investments are highly complex. Overseas investment projects are subject to dual regulation—both by the home country and by the host country.
China has accumulated over 600 overseas mineral resource exploration, development, and M&A projects, spanning more than 70 countries. Most of these projects are joint ventures or cooperative partnerships that require Chinese participation in management. These projects involve diverse mining investment environments and multiple languages. At both the national and corporate levels, there is a shortage of personnel who are proficient in foreign languages, possess specialized expertise, and are familiar with the mining laws of the respective countries.
4. The International Monetary Fund and other entities interfere in China’s overseas strategies.
Our country’s overseas investment strategy—providing economic and technical assistance to Africa and other regions, extending low-interest loans, and helping African nations build infrastructure in exchange for rights to exploit their mineral resources—has drawn attention and raised concerns from institutions such as the World Bank, the International Monetary Fund, the European Union, and the United States. These interest groups, whose “cheese” has been stirred by our country’s actions in Africa, argue that Africa is using its mineral resources as collateral to secure loans from China, a practice that could potentially plunge Africa into even deeper poverty in the future.
Take, for example, a $9.25 billion agreement between China and the Democratic Republic of the Congo (DRC). Under the agreement, the DRC has pledged to supply China with millions of tons of copper and cobalt in exchange for roads, railways, and other infrastructure projects. Officials at the International Monetary Fund (IMF) are concerned that this deal will increase the DRC’s debt burden and have delayed granting relief on most of the DRC’s $10 billion debt. During his recent visit to the DRC, IMF Managing Director Kahn stated that the Chinese-DRC agreement needs to be amended to avoid conflicting with the IMF’s debt-relief program. Should the DRC accept the Chinese agreement, the IMF will revoke its planned debt relief for African countries. The business model underlying China’s cooperation with Africa is coming into conflict with the bureaucratic structures of Western development aid.
5. Actions taken by other countries against China’s mining-related strategies have narrowed our room for maneuver.
Countries such as the United States and Japan have long been closely monitoring China’s activities in the field of mineral resources and have taken countermeasures against any actions China undertakes in this area. To some extent, this will narrow the scope for our country’s overseas mineral exploration and development activities. It’s easier to dodge an open attack than to guard against a hidden one.
In September 2005, immediately after China announced its nuclear energy development plan, Japanese corporate groups—centered around general trading companies—accelerated their strategic deployment, began setting up operations worldwide, and started securing overseas uranium mines. As a spokesperson from Mitsui inadvertently revealed, the purpose of Japan’s move was straightforward: “We must secure our share of uranium before Chinese competitors enter the market.” Since then, Japan has taken a series of measures in the uranium sector to ensure a stable supply of uranium. India, too, cannot be overlooked. India’s stage of development is similar to China’s, and its demand for resources is just as pressing as ours. Although India lacks a comprehensive, nationally coordinated policy, its prominent family-owned enterprises and medium-sized companies demonstrate strong international competitiveness in “technology-intensive” and “highly diversified” industries. The Indian government has established an investment firm specifically tasked with acquiring stakes in overseas coal and metal companies. Foreign media believe that currently, roughly half of the world’s major corporations are targeting India and China. In the uranium sector, India has stepped up its efforts to increase investment in exploration and development abroad.
II. Recommendations for In-depth Investment in the Exploration and Development of Overseas Mineral Resources
In response to the increasingly challenging international and domestic environment facing overseas mining exploration and development investments, we have analyzed the current unfavorable factors encountered by Chinese enterprises going abroad and put forward relevant recommendations.
1. Adjust the guiding principles for the internationalization of mineral resource exploration and development.
Currently, the share of China’s overseas exploration investments in global exploration investments is seriously misaligned with China’s future resource needs. Compared to overseas development projects that often involve large-scale acquisitions, exploration projects require smaller amounts of capital and are less politically sensitive. The government should encourage domestic enterprises to engage in overseas exploration, but it should also adjust its overseas exploration and development investment strategies in light of the current situation: namely, the limited capacity of Chinese geological survey institutions, the scarcity of high-quality, unexplored areas abroad, and the significant funding gaps currently existing in ongoing exploration projects. According to statistical data from various sources, China’s overseas mineral resource exploration, development, and equity investments exhibit the following characteristics: First, the main entities involved in exploration, development, and mergers & acquisitions are state-owned enterprises and state-run geological survey institutions; second, the primary mode of exploration investment is through establishing wholly-owned subsidiaries registered overseas, which then form joint ventures with local partners in the host countries to jointly apply for exploration rights, with Chinese parties typically holding a controlling stake. Equity investments generally take the form of small minority stakes, and the funding primarily comes from loans; third, exploration investments and mining M&A investments show a stark polarization. At the project lifecycle stage, most exploration projects are at the early-stage, risk-prone phase, whereas M&A targets are mainly mining companies already possessing operational mining projects—there is a notable lack of mid-stage projects; fourth, exploration investments are concentrated in developing countries such as those in Central Asia and Africa, while M&A investments are primarily directed toward mining companies in developed countries like Australia and Canada; sixth, the targeted minerals for exploration are relatively diversified, whereas the minerals targeted in M&A deals are comparatively concentrated, with iron ore being the primary focus.
The government encourages domestic enterprises to conduct overseas exploration, but given the current situation—such as the capacity constraints of Chinese geological units, the scarcity of high-quality, unexplored areas abroad, and significant funding gaps in existing exploration projects—it is necessary to adjust investment strategies for overseas exploration activities.
(l) Recognize the current situation and proactively shift the government’s strategy from being a leader to providing policy support.
First, promptly monitor comments from domestic and overseas media on China’s overseas mining investments to stay abreast of changes in the international landscape. It is also important to pay close attention to foreign investors’ activities in China, with particular emphasis on companies from Japan and the United States. Official authorities should encourage enterprises to focus purely on commercial considerations and actively promote the nation’s goal of achieving the internationalization of mineral resources through indirect means. The state should emphasize commercial intent from top to bottom, thereby safeguarding both national and corporate interests. Whenever possible, enterprises should avoid mergers and acquisitions targeting internationally renowned companies, thus staying out of the public spotlight. In cases where projects encounter opposition from foreign governments or local communities, it is crucial to let go in a timely manner to prevent negative impacts from accumulating and adversely affecting Chinese enterprises as a whole.
Second, we must fully recognize the following objective realities: domestic enterprises lack sufficient experience in strategically managing mineral resources; China’s state-owned enterprises have limited experience in international operations; developed countries such as the United States and Japan are actively working to restrain China’s development and possess rich experience in implementing mineral resource strategies; and multinational mining companies boast extensive experience in internationalization. In the process of overseas exploration and development investment, enterprises should be mindful of their surroundings and take into account both immediate needs and long-term considerations.
Preliminary analysis suggests that the following issues warrant further study: Is it possible for China’s mineral resource strategy to be exploited by other international mining companies or foreign countries? Beyond our own gains, what benefits have China’s investments in mineral exploration and development, as well as overseas mergers and acquisitions, brought to other countries and companies? In China’s overseas investments, are there more opportunities for us, or do the host countries and target companies actually have greater opportunities? At the very least, Chinese geological survey institutions, using state fiscal funds to carry out grassroots-level exploration activities in some underdeveloped developing countries, are required to submit geological data to the host countries. These host countries stand to benefit even more than we do, because such exploration activities enhance national wealth—a task that foreign countries actively encourage enterprises to undertake through a variety of incentives.
Once again, the government needs to downplay the “going global” mindset and instead adopt an internationalization and integration strategy.
The government should step back from the forefront and move behind the scenes, particularly by downplaying the notion of “going global” for resources, thus avoiding giving other countries the impression that it’s constantly crying “wolf.” From a supportive perspective, the government should place greater emphasis on comprehensive goals such as corporate nationalization and integrated management—rather than focusing solely on going abroad to seize resource markets. Transforming the implicit concept of “going global” into explicit market-driven initiatives, and promptly adjusting the government’s role in light of public opinion as well as political and economic trends, is a critical issue that urgently needs to be addressed.
(2) Taking the cultivation of enterprises’ core competitiveness as the policy starting point.
In light of China’s current international political and economic environment and the present state of state-owned enterprises, we need to adjust the approaches for engaging in the global allocation of mineral resources or implementing an internationalization strategy for the mining industry. Ten years ago, when Chinese enterprises—especially exploration companies—generally found it difficult to “go global,” a “going-out” strategy was indeed appropriate. However, under the new historical context, we should re-examine our overseas mineral resource exploration and development investment strategy, reconsider the ways in which our mineral resource strategy is implemented, and reassess the role that the government should play in this strategic endeavor. If the government’s public opinion fails to steer in the right direction and its actual measures lag behind, enterprises will not reap any tangible benefits but instead suffer adverse consequences.
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(3) Treat the domestic market as a training ground for enterprises and improve the investment environment for the domestic mining industry.
For domestic enterprises to step onto the international stage, they need to possess certain capabilities in business management and risk resilience. However, many mining companies in China are still relatively new players. Compared with the development level, stage, and pace of overseas mining markets, China’s mining industry still has significant differences. In the Chinese mining environment, domestic enterprises are still immature and lack sufficient experience. When competing in the international market, they often lack the capacity to withstand external market pressures and adapt to changing conditions, which can easily lead to serious mistakes such as business failures and eventual asset losses. Therefore, the domestic mining investment environment serves as the cornerstone for enterprise growth. Only by continuously honing their skills in a favorable domestic investment environment can enterprises truly shine when they enter the global stage.
2. Government-led, promoting the integration of resources across various sectors.
We should promote division of labor and collaboration among government agencies, integrate policies, consolidate and reallocate funds, and integrate information resources.
(l) Integration of government functions and coordinated interagency collaboration
Currently, the National Development and Reform Commission, the Ministry of Finance, the Ministry of Natural Resources, the Ministry of Commerce, and other relevant agencies each have specific functions for managing overseas risk exploration projects. However, these management bodies have different divisions of responsibility, leading to gaps and lack of seamless coordination in their operations. It is recommended that the government consolidate its management agencies to address the current situation of misalignment among multiple departments, clearly define the primary regulatory body for overseas exploration enterprises, and explicitly delineate their respective management responsibilities. This approach would facilitate a comprehensive understanding of China’s overseas exploration activities and ensure greater unity and coordination in the implementation of our “Going Global” strategy.
The internationalization strategy for mineral resources is an integral part of China’s overall internationalization strategy, and also a key component of the mineral resources strategy itself. The Ministry of Natural Resources should assume certain responsibilities in this regard. Initially, these responsibilities include overseas information collection and services, regulation of overseas exploration enterprises, joint oversight of development enterprises, project filing and monitoring, review and tracking of state-supported projects, as well as evaluation of such projects. At present, while China is focusing on collecting basic geological information from overseas, it should also pay close attention to soft-environment factors such as overseas policies, regulations, and cultural conditions, and provide corresponding services to enterprises.
(2) Promote integration among enterprises through tax deduction measures.
In China’s overseas mergers and acquisitions in the mining sector, some single transactions alone exceed the global annual exploration budget, making these investments extremely costly. Meanwhile, overseas exploration investments account for less than 1% of the total exploration budget—a situation that is inconsistent with China’s future demand for mineral products and also represents an unreasonable allocation of resources across the upstream and downstream industrial structure. Given that Chinese enterprises’ overseas exploration activities ultimately benefit mining companies and smelting and processing enterprises, it is advisable to encourage downstream enterprises to get involved at an earlier stage and, through methods such as equity participation, help address the financing challenges faced by geological survey institutions.
From the perspective of government policy guidance, it is recommended to adopt tax measures that allow mining companies investing in overseas exploration enterprises to claim tax deductions for their overseas exploration investments, thereby encouraging downstream enterprises to engage in upstream activities.
(3) Integration of various policy measures both within and outside the country
Take stock of the various support measures that the state can provide within this cycle and even over a longer-term framework, with the exploration and development sector taking a coordinated approach. Cease support measures that target individual state-owned enterprises and concentrate resources excessively on them; instead, integrate these support measures into a comprehensive policy framework that encompasses multi-level, wide-ranging, phased, and broadly beneficial policy instruments—including diplomatic support, credit guarantees, financial services, investment protection, policy-based loans, tax incentives, guidance, and training. Resources should be allocated through a competitive mechanism to the enterprises that demonstrate the greatest competitiveness.
Integration of domestic and foreign investment policies in the mining sector. Given the significant differences between domestic and international mining exploration laws, policies, and regulations—such as inconsistencies in reserve evaluation standards—domestic enterprises operating overseas face a dilemma: they must not only comply with local exploration standards but also meet domestic requirements upon returning home. This dual compliance burden poses considerable challenges for these enterprises. Therefore, it is essential to integrate domestic and international policies and standards for mining exploration, thereby reducing the need for dual compliance standards.
(4) Leverage the power of industry associations
Industry associations can play a significant role in assisting domestic enterprises with overseas exploration activities. These associations can provide relevant geological exploration information, technical personnel data, labor market information, social and environmental conditions in the host country, information on foreign mining regulatory authorities, and details on mining legal frameworks. Moreover, industry associations can regularly organize exchanges among their members to share experiences gained from going abroad, thereby helping to avoid conflicts arising from competing for the same mineral rights overseas.
(5) Information Integration
Relevant departments of the Ministry of Natural Resources, the China Development Bank, and other institutions possess abundant information on overseas investment environments. In recent years, Chinese enterprises engaged in overseas investments have also accumulated valuable practical experience and lessons learned. It is advisable to designate specific agencies to integrate the above-mentioned information and, drawing on the U.S. Geological Survey’s approach to country-specific studies, leverage the advantages of our embassies and commercial offices abroad in gathering information and developing additional information channels. Using information services as a key link, we can gain a better understanding of the dynamics of enterprises’ overseas investments.
One of the most critical forms of support that domestic enterprises need when making overseas investments is access to information—specifically, details about the investment environment in the host country, the procedures for obtaining exploration and mining licenses, and the documentation required for approval both domestically and abroad. Such information must be accurate, comprehensive, and timely. Therefore, it is essential to establish an authoritative information platform and develop a suite of overseas investment service products, including a guide to the mining investment environment. This will provide enterprises with efficient information support in securing overseas resources and ensure that the information is updated dynamically and in real time.
We will convene enterprises engaged in exploration activities overseas to share their experiences and lessons learned, identify common challenges, highlight potential risks, and provide guidance to other exploration companies. If necessary, we will invite management personnel from some globally renowned multinational companies to deliver training sessions. During their overseas operations, these geological survey units have accumulated valuable political and legal information about host countries as well as fundamental geological data—information that is highly foundational and possesses significant shared value. We recommend sharing this information widely.
If, as Frase points out, the survey results show that during the economic crisis, at least 30% or more exploration companies have been delisted, then the mining rights held by these companies could become targets for domestic enterprises to acquire. It is recommended that the Ministry of Natural Resources organize relevant agencies to dynamically monitor global information on mineral resource sites, investment promotion opportunities, transfers and sales of mining rights, joint venture and cooperation arrangements, as well as bankruptcy information of mining companies, and to provide these services free of charge to enterprises through a user-friendly platform.
3. Conduct a comprehensive cleanup of risk exploration projects in stages.
First, we will study and adjust the special funding policy for overseas risk exploration. Building on a thorough summary of the operational status of the existing special funds for overseas risk exploration, we will develop a new special funding policy. Guided by the goal of maximizing the mineral exploration outcomes achieved through these funds, we will examine and refine the system covering aspects such as fund amounts, issuing entities, eligible recipients, disbursement conditions, expenditure scope, disbursement methods, return requirements, and oversight and management mechanisms.
Second, we should screen projects that are supported by special funds for overseas risk exploration. Most of the projects supported by these special funds are still at an early stage of exploration. With the exception of a few projects that are being prepared to be discontinued due to poor prospects, the majority of these projects require continued work. It is recommended that the Ministry of Natural Resources assemble a specialized team composed of experts from fields such as law, finance, geology, mineral resources, and country-specific studies. When necessary, they should also engage experienced consulting firms with deep country-specific expertise to conduct a comprehensive evaluation of projects that enterprises have self-reported as having promising potential. For those projects that show no further prospecting potential or that, due to natural conditions, geographic factors, infrastructure constraints, or other reasons, cannot be economically viable in the short term, they should be terminated and written off as soon as possible to avoid further increases in costs.
Second, existing funds will be used to continue ongoing projects, and no new grassroots exploration projects will be established. Currently, many promising exploration projects—without continued state support—will see their earlier expenditures go to waste. For these projects, the state should, on the basis of a thorough assessment, provide supportive funding until the risks can be adequately borne by the Risk Exploration Fund, private equity funds, and mining enterprises themselves. Given various factors, including the financial crisis, we recommend that special fiscal funds no longer support grassroots risk exploration projects.
4. Improve and refine the supporting system for overseas exploration and development investments.
(l) Improve the legal system
Although our country has enacted numerous supporting laws and regulations over the years to implement its “Going Out” strategy, there are relatively few specific laws and regulations governing mineral exploration and development. Among the national policies encouraging “Going Out,” many provisions address financial and foreign-exchange matters, while very few pertain to industry-specific regulatory requirements. Examining the current domestic laws and regulations related to overseas investment, we find that they primarily cover areas such as approval and review of overseas investment projects, overseas guarantees, scrutiny of funds, foreign-exchange management, and management of risk-assessment funds. The legal framework for overseas investment is fragmented and lacks uniformity. Moreover, enterprises require a comprehensive set of legal safeguards—including diplomatic support, credit guarantees, financial services, investment protection, policy-based loans, tax incentives, guidance, and training—to ensure their successful overseas operations. Therefore, it is imperative and urgent to improve the supporting legal framework for the “Going Out” strategy.
Moreover, there are gaps in the legal and regulatory frameworks concerning insurance, taxation, and talent-development mechanisms for overseas mining exploration and development investments. Therefore, we recommend accelerating the establishment and improvement of a comprehensive legal system to enable enterprises to venture abroad without any lingering concerns.
(2) Strengthen regulatory oversight of overseas mineral resource exploration and development investments.
It is recommended to establish a unified agency responsible for providing comprehensive oversight of overseas exploration and development projects. A government-managed information-sharing mechanism should be set up for the exploration and development of overseas mineral resources, allowing enterprises to access information that does not involve their commercial secrets. The supervisory functions should include timely and dynamic monitoring of project initiation, progress implementation, use of funds, and the activities of personnel operating abroad. It is also recommended to establish supporting mechanisms for enterprise credit evaluation and penalties, ensuring that supervision is effectively implemented.
5. Follow international practices and improve the domestic investment environment.
The internationalization strategy for mineral resources will remain a key strategic priority for our country for quite some time to come. To enable domestic enterprises to effectively build up their competitiveness, it is essential that domestic institutions align themselves with international standards. Only in this way can we reduce the learning costs associated with overseas investments for these enterprises. To achieve this, our country needs to move away from certain “China-specific” ideas and discard institutional practices that do not conform to international norms and are, in fact, unnecessary to maintain. This includes the China-specific system for classifying and grading resource reserves, the mining accounting system, and certain aspects of the mining tax regime that reflect uniquely Chinese characteristics. In domestic legislation governing mineral resources, we should follow international conventions and adopt relevant systems—such as a low-threshold entry system for mining rights.
It is neither feasible nor sustainable for China’s geological exploration units operating under the public-sector mechanism to conduct overseas exploration. Therefore, we should start by reforming the licensing system for prospecting rights through mineral resource legislation and by restructuring the institutional framework of geological exploration units, thereby strengthening the market-oriented development of the mineral resource exploration industry. On this basis, we need to foster new entities engaged in mineral resource exploration, establish a rational mining tax system that conforms to international practices, develop capital market mechanisms tailored to the specific characteristics of the mining industry, and set up an exploration subsidy system.