The Real Problems Faced by China's Mineral Energy Industry

De-capacity and management system reform become an important step in promoting the reform of the supply side of the mining industry

First, the coal industry's capacity reduction efforts have been actively carried out, and debt processing has become a constraint issue. Resolving excess production capacity is actually a continuation and intensification of the coal industry's efforts to get rid of difficulties in the past few years. On February 1st, the State Council issued the Opinions on the Coal Industry's Resolving Surplus Capacity to Realize the Development of Poverty-Relief (Gufa [2016] No. 7). It will insist on the 16-character principle that the market is forced by the enterprises, local organizations and the central government. Starting in 2016, it will use 3-5 years to withdraw 500 million tons of production capacity and reduce restructuring by 500 million tons. After the documents were issued, all relevant provinces and regions and relevant departments worked together, and did a great deal of work in terms of grasping the working mechanism, grasping policy support, grasping target decomposition, and grasping typical demonstrations. In particular, the adjustment of the “working day” system (re-determining production capacity by 276 working days per year) will play a positive role in defusing production capacity. Although the coal industry's capacity elimination efforts have been actively carried out, the general asset-liability ratio of coal companies is high, and bank credit pressure is very high. With current coal prices, companies cannot do anything. Therefore, debt processing has become one of the major obstacles to the capacity reduction in the coal industry. Second, the progress of the company's capacity reduction is uneven, and the supply-side reform time may be lengthened. At present, there has been no fundamental change in the fundamentals of China's mining supply side reform. Under the present market economy conditions, although the production capacity of private enterprises has basically been put in place, the state-owned enterprises that have played a leading role in capacity reduction have not only failed to take substantive actions, but have also supported the development through **. Judging from the reform of state-owned enterprises in the production of commodities such as coal, iron and steel, and cement, their current mergers and reorganizations are simply a superposition of enterprises, and there has been no substantive change. The solution is to the current difficulties, rather than real capacity reduction and industrial adjustment. With the compression of production capacity, state-owned enterprises are the key, and a new mechanism needs to be established to ensure that the dismantled production capacity is not repeated and does not develop. This is the core of the reform of the supply side of the mining industry.

In addition, the reform of the mining right transfer system and the country’s mineral resources state equity system are under study. The reform of the mining rights management system is progressing further, and through the deepening of the reform of the mining right examination and approval system, the approval authority for mining rights has been promoted in an orderly manner. At present, pilot reforms have been carried out in the reform of the oil and gas resources exploration and exploitation system in Xinjiang, and the approval authority for coalbed methane exploration and exploitation has been devolved to Shanxi.

The traditional mineral demand and economic development are in a relatively decoupled state, and the social status of modern minerals and emerging minerals continues to rise.

First, traditional mineral consumption has been or will soon be decoupled from economic development. The transformation process from the initial stage of industrialization to the middle and later stages of industrialization is also the process of conversion of traditional minerals to modern minerals and emerging minerals. The decoupling index shows that the current consumption of coal and iron in China has been relatively decoupled from economic development. As copper, lead and zinc continue to approach consumption peaks, signs of decoupling will gradually emerge. Second, modern minerals such as oil, gas, aluminum, rare earth, and emerging minerals, as well as minerals closely related to people's livelihood, such as gold and agricultural minerals, are still linked to economic development. Third, China's mining companies are actively deploying modern minerals and emerging minerals mergers and acquisitions globally. In April 2016, China National Gold Group and Eldorado Canada formally signed an agreement to purchase 82% equity in Guizhou Jinfeng Gold Mine; Sichuan Luqiao Mining Investment and Development Co., Ltd. in Asmara and Canada Sanrica Gold in Eritrea The company signed an equity settlement agreement and officially acquired a 60% equity stake in Asmara Eritrea, which is owned by the company, for US$65 million.

Under the new normal, two major strategic upgrades need to be implemented to promote the effective reduction of mineral resource demand.

Under the new normal, China's mining industry needs new impetus, and it is necessary to effectively reduce mineral demand through the development of new industries. The first is to promote the upgrading of traditional industries to emerging industries, and gradually reduce the consumption of bulk mineral products required by traditional industries such as coal, steel, cement, and building materials (this part of mineral demand accounts for more than 70% of the total consumption of mineral resources). Demand for emerging strategic minerals such as silicon, yttrium, yttrium, and graphite, fluorspar will continue to grow (the consumption of this part of minerals is less than 10% of the total consumption of mineral resources). The second is to promote the escalation of traditional industries to new industries. Information network technology and traditional manufacturing industries have penetrated and integrated deeply with each other and are profoundly changing the way of industrial organization. The new format will bring about revolutionary changes to traditional production methods. It will significantly increase the efficiency of the use of mineral resources and bring about revolutionary changes in resource demand.

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