Legal framework for foreign investment in Chinese mineral industry

Grandall Legal Group
Wang Weidong
[email protected]

Mining industry foreign investment policy

The Chinese economy's continuous, rapid and healthy development places a demand on energy and mineral resources that draws attention worldwide. With respect to foreign investment in the Chinese mineral industry, the earliest large-scale foreign investment project was the Shanxi Pingshuo Mining Project. From then on, China has continued to implement the policy of encouraging foreign businesses to invest in the exploration and exploitation of mineral resources in China. The Chinese government has already taken a number of measures to further improve the environment for foreign investment, widen the outward opening and strengthen international cooperation. These include:

• Encouraging foreign businesses to invest in the Chinese mineral industry: Dating from 1999, China has successively issued 'Opinions on Further Encouraging Foreign Investment at Present', 'Catalogue of Industries for Guiding Foreign Investment', and 'Catalogue of Dominant Industries for Foreign Investment in the Central and Western Regions', which were amended many times to fit new circumstances.

• Gradually improving the laws and regulations for mineral resources management: China has put in place a legal system for its mineral resources consisting of the 'Mineral Resources Law' and other relevant laws and regulations, with the Constitution as its foundation. These laws and regulations have constituted China's basic legal system for the management of its mineral resources and provided a legal guarantee for foreign investment in the Chinese mineral industry.

• Continuously improving cooperation with foreign companies in exploring and exploiting oil and gas resources: In the field of oil and gas resources, the Chinese government has always adopted a pattern of cooperation with foreign companies. Cooperation is always carried out using specified state companies and product sharing contracts, which is a method that has been widely endorsed by all foreign companies. Major laws include 'Regulations on the Exploitation of Offshore Oil Resources in Cooperation with Foreign Enterprises' and 'Regulations on the Exploitation of Onshore Oil Resources in Cooperation with Foreign Enterprises'.

• Encouraging foreign businesses to invest in the exploration and exploitation of other mineral resources: China issued 'Opinions on Further Encouraging Foreign Businesses to Make Investment in Exploring and Exploiting Mineral Resources Other Than Oil and Gas' in October 2000. This further expanded the rights of foreign businesses to start exploration and exploitation ventures either with exclusive capital or in cooperation with Chinese partners.

Foreign investment approval system for mineral industry

The approval system for foreign investment in the mineral industry is the same as those for other infrastructure industries in that it is subject to the foreign capital and industry access approval systems.

1) Foreign capital access approval system

The foreign capital access approval system was set up with the establishment of the Chinese legal system's apparatus for foreign investment. Simultaneously, a system of multi-tiered administration was established, according to which, the authorities of different levels exercise different powers over different industrial categories and total investment amounts.

On April 6 2010, the State Council issued 'Several Opinions of the State Council on Further Doing a Good Job in the Utilization of Foreign Investment'. It specified that any encouraged or permitted project with total investment (including capital increase) of less than US$300 million that is listed in the Catalogue of Industries for Guiding Foreign Investment must be verified and approved by the local government's relevant department. This is unless Catalogue of Investment Projects Subject to Verification and Approval of the Government requires it to be verified and approved by the State Council's relevant department.

2) Industry access approval system

China has adopted an authorisation system for the exploration and exploitation of mineral resources. For the exploration and exploitation of mineral resources, one must, in accordance with the law, apply for registration, hold an exploration or exploitation licence and gain the right of exploration and exploitation, respectively.

Restrictions and prohibitions

Pursuant to the December 11 2007 promulagation of 'Catalogue of Industries for Guiding Foreign Investment (revised 2007)', foreign capital can no longer be encouraged to invest in China's scarce or non-renewable important mineral resources. Foreign-invested enterprises are altogether prohibited from exploring and exploiting some non-renewable, important mineral resources. Foreign-invested high material consumption, high energy consumption, and/or high pollution projects are restricted or prohibited.