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China's red tape a black hole for Canadian miners

Miners work at a coal mine in Fuxin, Liaoning, in this 2009 photo.

SHENG LI/SHENG LI/REUTERS

A much sought investor protection treaty with China won't be enough to help Canadian mining companies struggling to advance their business here beyond exploration rights, the federal minister of natural resources has warned.



Joe Oliver, who has been in China this week promoting Canadian resources including energy and wood products, said he has raised with senior Chinese officials the plight of Canadian companies trying to convert exploration licenses into permission to mine in China, whom he said are running into serious barriers at a "sub-national" level.



China's mining industry is dominated by state-owned enterprises and regional governments issue most licenses required for operation; despite central government campaigns to crack down, corruption is still rife. Transparency International last year ranked China no. 78 of 178 nations in its 2010 corruption index and noted the mining sector is particularly prone to bribery, thanks to the high value investments involved and the need for government interaction and regulation.

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Negotiations for an investor protection treaty, often cited as a step toward creating a more equal and transparent playing field for Canadian firms operating in China, are said to be making substantial progress now after nearly 20 years of negotiation. But even if it is signed, it covers compensation in cases of expropriation or loss of value, not indefinite regulatory delays.



"If the barrier amounts to an effective expropriation then it could well be protective. If it's simply a delay I don't think it would be triggered," said Mr. Oliver, who raised the issue in meetings with Chinese vice-premier Li Keqiang and the minister for land and natural resources, Xu Shaoshi. "What we're trying to do is to get the national [Chinese]government to focus on this issue."



Only 23 foreign mining companies are presently conducting explorations in China, with projects worth a total of $90-million, said Michael Chender, CEO of Halifax-based Metals Economics Group, who spoke at the China Mining Congress and Expo in the port city of Tianjin this week. Companies looking to operate here face major challenges in both linguistic and cultural barriers, and in a central government that has its own agenda of expanding domestic companies' efforts at exploration.



"Working out the jurisdictional lines has always been challenging, and there's the sense you're not necessarily first in line for projects. And for small companies the effort to required to really get to these deposits is challenging," Mr. Chender said in an interview in Beijing. "Let's say it's usually not first on people's destination list."



So why bother? "People will think counter-intuitively. They think there must be opportunities here. Or they'll have good connections," he said. "[But] the fact that you have really so little spending here will tell you that it's challenging."



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