Blessing or Curse? Natural Resources in West China

Transcription

1 Blessing or Curse? Natural Resources in West China 1

2 Paradox of Being Rich in Natural Resources Thesis of Natural Resource Curse By Joseph Sitglitz, Richard Auty, Jeffrey Sachs, Andrew Warner Disconnect between abundance in natural resources and domestic economic growth and development Example: Latin America (before rise of leftists), Africa, Myanmar Why so ironic? Provoking both internal and external strife Rent seeking: Tendency towards poor governance and corruption Dutch disease: Less incentive to develop industry ( 實業 ) Fiscal fortuity: Soft budget constraint, price fluctuation, extravagance, impulsive investment, excessive borrowing 2

3 Sensitivity of Resource Abundance in West China 85% of state-level natural reserves in minority areas (2009 White Paper) Top secret 絕密 : Statistics regarding land and resources that would, if made public or disclosed, seriously harm ( 嚴重損害 ) the nation's image and social stability. Article 2, Regulations of National Administration for the Protection of Secrets, May 2003 Who own the resources? 3

4 UN Declaration on Permanent Sovereignty over Natural Resources General Assembly resolution 1803 (XVII), 14 December 1962 Article 1 The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national 民族 * development and the wellbeing of the people 人民 * of the state concerned. * A people (as singular noun) or peoples means about the same as ethnic groups 民族 4

5 Article 1 (paragraph 2) All peoples may, for their own ends, freely dispose of their natural wealth and resources without prejudice to any obligations arising out of international economic co-operation, based upon the principle of mutual benefit, and international law. In no case may a people be deprived of its own means of subsistence. 所有民族得為本身之目的, 自由處置其天然財富及資源, 但不得妨害因基於互惠原則之國際經濟合作及因國際法而生之任何義務 無論在何種情形下, 民族之生計不容剝奪 PRC as ratified state party International Convention on Economic, Social and Cultural Rights 經濟 社會及文化權利國際公約 5

6 International Experience United States: Tribal sovereignty of American Indians (guaranteed by both constitution and federal law) Canada: First Nations reserve (guaranteed by the constitution and the Indian Act 1876) Russia s constitution (Article 69) The Russian Federation shall guarantee the rights of the indigenous small peoples according to the universally recognized principles and norms of international law and international treaties and agreements of the Russian Federation. (broad legal principles, no supporting legislation) What about China? Socialist emphasis on collective (state) ownership Traditional Chinese thinking 普天之下, 莫非王土, 率土之濱, 莫非王臣 詩經 小雅 北山 6

7 Xizang ( West Treasure ) under Extraction Discontent of Tibetans both inside and outside PRC over extraction of resources and destruction of the environment in TAR and surrounding Tibetan regions by the party-state 7

8 Xiyu ( West Land ) also Inescapable 對不起, 謝謝你新疆的石油運走了, 新疆的天然氣運走了, 新疆的棉花運走了, 新疆的鉀鹽運走了, 新疆的黃金運走了, 新疆的和田玉運走了原子彈卻降臨在新疆了 I m sorry, thank you Xinjiang s oil has been transported away, Xinjiang s natural gas has been transported away, Xinjiang s cotton has been transported away, Xinjiang s potassium chloride has been transported away, Xinjiang s gold has been transported away, Xinjiang s Khotan jade has been transported away But the atomic bomb was indeed tested in Xinjiang Attributed to a resident of Bayingolin Mongol Autonomous Prefecture, in southeast Xinjiang 8

9 Minority Regions: China s Gold Mountains? 9

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11 2012: Discovery of huge deposit of nickle 鎳 (>1m tonnes), copper 銅 and cobalt 鈷 in Ruojiang 若羌 Panzhihua 攀枝花 11

12 In many western provinces, especially ethnic minority-concentrated areas, the compensation to local governments has been too low, which in fact has made it a predatory exploitation of the natural resources those areas own. All important natural resources in the west have been transferred to the east... but the beneficiaries of most from such businesses have been developers and end users, not the ones who actually own those resources. Cai Jiming 蔡繼明 Tsing Hua University 12

13 Earn less Western PLJs as the Sufferers Xinjiang retains only 1% of resources extracted Other countries: 10-16% to similar regions Cai Jiming s recommendation: 3% Tax issue: Resource development enterprises only pay tax to PLJs/cities where their headquarters are based Pay more Export resources and energy to the East at low prices Import expensive goods from the East Suffer much Locals bear the environmental costs The underprivileged especially minorities victimized by excessive exploitation of local resources, leading to social tensions Example: Costs of clear-cutting of forests > Part of the reason for 2010 Gansu mud-slide (1 463 died) 13

14 Xilinhot 錫林浩特 Inner Mongolia (2011) 14

15 2011 Xilinhot Protest Incident: An ethnic Mongol herdsman killed by a coal truck driver Background: Local discontent with coal mining in the region Destroy the environment and indigenous way of living New York Times 30 May

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17 The Case of Rare Earths 17

18 Rare Earths 稀土 For wide range of electronic goods, e.g. lasers, computer screens, fiber-optics, mobile phones, lowenergy light bulbs Deng Xiaoping: The Middle East has oil; China has rare earths 18

19 17 Types of Rare Earths elements / minerals Over 90% of China's production comes from west China, in particular Inner Mongolia Reserves said to have fallen from 85% (in 1990) to less than half (48% in 2011) of the world's total Excessive exploitation Discoveries in other countries to lessen reliance on China China s competitive advantage Loose environmental enforcement Little regard to safety issue in extraction Lack of effective resistance from locality Largely absence of free trade/market 19

20 Global Rare Earths Trade 20

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23 The Case of Baotou 23

24 District has 90+%* of China's rare earths reserves, and in 2005 may have accounted for 45%* of the world's production: Bayan Obo Mining District *Probably quantity, not value. Government insists that rare earths represent only a tiny portion of the IMAR's economy Baotou Hohhot 24

25 Supply Chain: From Extraction to Processing One of the hundreds of rare earths processing factories in Baotou 25

26 Foreign companies are beginning to set up processing plants in China: phosphors are roasted for 20+ hours at this Intematix plant. NYTimes 24 Aug

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28 Disposal of effluent into tailing 尾礦 lake -- formerly a productive corn/maize area Radioactive (thorium) gets into Yellow River Locals have serious health problems, with richer people choosing to leave Heavily guarded: Almost impossible to visit Thirty-year-old Jia Yunxia says through crumbling, yellow teeth: We know the lake is killing us. We are sick all the time and my daughter is always ill because of the pollution. The government told us we would get compensation to help us move but we have not seen a single yuan. We think local officials may have taken it.... [Perry:] For hours after our visit, my stomach will lurch and my head will throb. We are here for only an hour; those living in... Dalahai, and surrounding hamlets breathe in the poison all day, every day. -- Simon Perry SCMP, 13 Mar 2011 Even Beijing acknowledged its seriousness (See People s Daily Online, August 29, Tailing Lake : Evidence of Environmental Destruction SCMP 13 Mar KM 28

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30 Rare Earths: The Big Players Baotou Iron and Steel (Group) Co. Ltd. Baogang Group 包鋼集團 Inner Mongolia Largest export quota tonnes China Minmetals Corp 中國五礦集團 Qinghai and elsewhere 2 nd largest quota tonnes 20+ smaller players in west China Other larger companies in east China 30

31 60% stake in Shanghai Wangchao Investment Co. ( 上海王朝投資 ) (bought in 2008) 30% stake in Jiangxi Rare Earths 江西稀源礦業 for RMB450m That means Xi family holds 18% indirect stake therein, allegedly paid RMB450m for it (Bloomberg, June 29, 2012) No info on current value (not publicly traded) Xi Jinping Family s Involvement 31

32 Japan, US and EU jointly constitute nearly 90% of China s rare earths export (2011) 32

33 Decline in PRC Rare Earths Production (in thousand tonnes) Uses of particular rare earths Yttrium 釔 used to strengthen steel Terbium 鋱 for mobile phones Green technologies 33

34 Price Surge (2011) More than doubled in less than a month (May 25-June 18) for most types Reasons China cut exports China stock-piling (began in 2010, storing up to 200,000 tonnes -- nearly twice the country s annual production) Companies hoarding Illegal mines closed for environmental reasons Possible speculations Financial Times, 19 June '11, based on Shanghai Metals Market; Antake. 34

35 Benefits of Cornering Market Restricting exports for political reasons? Restricting exports to control international markets? Restricting exports to force foreign companies to invest in West China and move production there? To use moderation in the control of the production of rare earth resources and reduce exports to an acceptable level is to attract more Chinese and foreign investors into the region. -- Zhao Shuanglian 趙雙連 Vice-Chairman of Inner Mongolia ( ) Report: Since 2009, Beijing began arranging for SOE's to take over these businesses to maintain control (the two biggies are already SOEs) -- Jamestown s China Brief, 8 October

36 WTO rules forbid trade restrictions, with exceptions Article 20 Allow members to impose export restrictions for certain reasons Conservation of exhaustible natural resources if such a restriction also applies domestically PRC benefits from WTO regime more than anyone indeed Rare Earths and International Trade 36

37 Japan-US-EU Joint WTO Complaint against China 2012: Japan, US and EU jointly filed a complaint with WTO against China imposing export duties / control China: Export duties and volume quotas are reasonable for the sake of environmental protection and sustainable development of rare earth industry Japan 1 st direct complaint against China at WTO Consider China s export control as countermeasure of bilateral controversy over East China Sea and Diaoyutai/Senkaku Islands Develop alternative materials and diversify sources of supplies 37

38 Japan-US-EU Joint WTO Complaint against China WTO Dispute Settlement Panel ( ) Upheld the joint claim that China s export duties on rare earths violate WTO rules China s export duties on rare earths run counter to an agreement on abolition in principle of export duties that China adopted in 2001 when joining WTO Parties concerned are allowed to file an appeal with Appellate Body (WTO top court) 38

39 Rare Earths Trading Platform Opaque pricing: Difficult to obtain costing information 2012: Baotou Steel Rare-Earth Company announced plan to establish a physical* trading platform : Baotou Rare Earth Products Exchange (first national trading platform of its kind) More transparent pricing? Tighter control? (Prices have been dropping, sometimes in half due to increasing global demand) Price manipulation? (More centralized, probably more) Hidden agenda: Avoid companies trying to undercut each other * Physical means actual goods, no futures 39

40 The whole idea of the officially announced GOW strategy is to create a favourable environment for the area s development by attracting inflow of capital, technology and personnel to western PLJs (Chen, p.42). Throughout the process of GOW in the past decade, however, economic expansion and marketization have destabilized the demographic and employment situations of ethnic minority areas (Zhu and Blachford, p.715) What factors have contributed (or otherwise) to the marginalization and social exclusion of ethnic minorities in their homeland? The infrastructure projects (say railways) seem principally serving strategic objectives having less value for local society and economy. Who are the main beneficiary indeed? How can interests of different stakeholders be served? Discussion: Is common prosperity mission impossible? 40