By Xiang Anbo, Enterprise Research Institute of DRC

Research Report No 72, 2010

I. A Poor Natural Endowment of China's Mineral Resources Characterized by a Rich Aggregate yet a Per-capita Inadequacy

Being vast in territory, China is a big producer, consumer and importer of mineral resources. With a rich aggregate, China's total of mineral resources ranks third in the world in terms of potential value. Nonetheless, at a per-capita calculation, China's mineral resources only account for 58% of the world average, ranking the 53rd. The poor natural endowment of mineral resources is basically characterized by "Three Majorities and One Difficulty", complete categories with unsatisfactory structure and a relatively concentrated distribution that cannot fit into the development of the economic areas¹. Of the discovered 171 sorts of mineral resources, 158 have proven deposits. Of which, only such mineral resources with traditional advantages as tungsten, stibium, rare-earth, graphite and magnesite, see their per-capita deposits exceeding the world average, while the deposits of the strategic mineral resources that are of vital importance to the national economy and the people's livelihood, such as iron, manganese, chromium, copper, aluminum, gold and silver, are all lower than the world average level. The average amount of 45 sorts of major mineral resources possessed per person is less than half of the world average. The deposits of such major mineral resources as iron, copper and aluminum, only come to 1/6, 1/6 and 1/9 of the world average, respectively. Related studies have shown that by 2010, of the 45 sorts of key mineral resources, only the supply of 23 sorts can be guaranteed, while the supply of 10 sorts has to be guaranteed through imports over a protracted period of time and 5 sorts depend mainly on imports as a result of scarcity; and by 2020, only the supply of 6 sorts can be guaranteed, which cannot be guaranteed at all by 2050. China's severe mineral constraints are reflected by more than 10 sorts of mineral resources, such as iron ore, bauxite, copper ore, uranium, sylvite, nickel and manganese ore, etc. Constraints from such mineral resources occur in various degrees. For instance, copper, aluminum, lead and zinc are all constraint minerals of China, and copper and aluminum restrain China's economic development more than lead and zinc do.

II. China's Industrialization Process Facing Huge Resource Pressure

1. Realization of industrialization calls for enormous culmulation and consumption of resources

China's industrialization drive is a process of industrial development with the biggest population participation in human history. It brings about enormous consumption of resources and impairs the environment considerably. During this process, China suffers more resource and environmental constraints than any other countries in the world. And such constraints will build up with the passage of time and consumption of resources. At present, China is entering into the initial stage of the latter period of industrialization process. Based on the law applied by developed countries and by virtue of the advantageous conditions to be used by China to realize its mechanization, electrization, electronization and informatization synchronically, related studies have predicted that by 2020 when China initially realizes its industrialization, China's per-capita annual consumption of mineral resources will possibly be lower than that of the United States and Japan during their peak consumptions. However, due to China's large population, its total annual consumption of resources will still set a record. During the coming 10 years, China will still increase its consumption of mineral resources at a fast pace and the 10 years will be the peak phase of mineral consumption. During this period, the coefficient of elasticity for the consumption of staple mineral products will all be higher than 1. According to preliminary judgment, in order to ensure a development for next 20 years, China will need at least 30 billion tons of iron ore, 150 million tons of copper ore concentrates and 5 billion tons of bauxite.

2. China is highly dependent on foreign mineral resources

Over recent ten years, the growth of deposits of China's major mineral resources has been slower than the increase of mineral products, and the increase of mineral products has been much slower than the increase in the consumption of mineral products. China has become the biggest importer of mineral products in the world, with its imports going up year by year. The external dependence of some mineral products has been increasing constantly. Take the iron ore as an example. Its import dependence rose steadily from 15.3% in 1991 to 56.7% in 2005, and fell during 2006 and 2008, yet went up again to an all-time high of 62% in 2006 (with the active and timely adjustment of the demand made by Chinese enterprises according to price ups and downs as a reasonable factor). In terms of the period of China's industrialization and in view of the international experience, for a long period of time, the contradictions between the supply and demand of some major and pillar mineral products in China will still continue to aggravate, and the overall import dependence will increase continuously and steadily with the deepgoing industrialization process. The conspicuous problem resulted from the high import dependence is whether the foreign resources can be attained steadily at reasonable prices and in desirable quantity. In terms of the major suppliers of the three sorts of important mineral resources of iron ore, bauxite and copper ore, China mainly depends on Australia, Brazil, India and South Africa for iron ore, on Australia, India and Jamaica for bauxite, and on Chile, Mongolia, Peru and Australia for copper ore. China should set great store by studying and properly handling the economic and trade relations with these countries as well as its investment in resource industries of these countries.

China's Iron Ore Output, Imports and Dependence during 1991～2009 (Left axis: 100 million tons; Right axis: %）

Note: The dependence includes the adjusted data after calculation of the iron ore grades.

3. Lack of the pricing power has not turned "China factors" into "China advantages"

The intensified rapid growth of China's demand for mineral resources has produced significant impact upon the global market. Nonetheless, not only has the "China Demand" brought about advantages to China in price negotiations, rather, it has given rise to the price increase in the importation of mineral resources. And the advantageous resources, such as the rare-earth, are being exported at unexpected cheap prices. The root cause of "buying at high prices while selling at low prices" lies in the lack of the pricing power over mineral resources. The causes of the lack of the pricing power mainly include: when dealing with the highly monopolistic upstream resource enterprises, the international trade for external mineral resources is being conducted by various and decentralized businesses; the integration of such industries as iron and steel towards upstream sectors is not being carried out with the utmost effort and China's investment and involvement in and its control over overseas mineral resources are inadequate; China is short of futures markets of world influence, and the enterprises do not fully understand the futures pricing and the spot trade; the macroscopic information system and the analytical system are incomplete and imperfect. The lack of the pricing power forces China to pay a higher cost in time of high consumption of resources during the industrialization process, thus exacerbating the resource-related restriction against the development.

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¹"Three Majorities and One Difficulty" refer to the majority of lean ores, the majority of small and medium-sized mineral deposits, the majority of integrating and additional deposits and the difficulty in development and utilization of mineral resources; full and complete varieties in unsatisfactory structure refer to the amount of the pillar mineral reserves being on the low side and some mineral resources not much used being rich in reserve; relatively centralized distribution not suited to the development of economic areas refer to the minerals and metals being rich in west China and scarce in east China, energy resources rich in north China and scarce in south China and water resources rich in south China and scarce in north China.