Mining the Future:
Chinese Investment in South
American Extractive Industries
Dr. Cynthia A. Sanborn
Universidad del Pacífico
Lima, Peru
Context .
• Global demand and competition; all MNCs and
SOEs seeking LA commodities.
• Renewed development concerns. Can we
diversify, escape “resource curse”?
• Rethinking role of State, public institutions
• Democracy, diversity of actors & issues
– Rights, environment, revenue distribution
• Higher global standards for industry, CSR
Questions
• In this context….
• What are the development implications of
expanded investment by Chinese SOE?
• Do Chinese firms – and government -- behave
differently than others in this region?
• Do governments behave differently with them?
• What can we learn from recent cases?
• What more do we need to know?
General Comments
• Chinese interest primarily oil & minerals, but also relative
social stability, local capacity (vs. Africa)
• Actively recruited by governments, partners
• Primarily SOE, but also firm diversity
• What do Chinese offer?
– Broad government-government agreements
– “Accomodationist” position vis governments, local elites,
changing rules
(Gonzalez V.)
– More money on the table, access to finance
– Access to China market
• Increasing Chinese government concern about firms´
behavior, at home and overseas
However…
• Goverment directives hard to implement afar & on the ground.
– When host governments not strong
– When firms not “national champion”, central government linked
• Limited experience with community relations, multi-stakeholders
– Tend to assume governments will resolve social problems
– Limited vocation for dialogue, media
• Lack of transparency. Part culture, part distance and language
– Do not participate in EITI, local counterparts
– Delisting acquisitions (Toronto, London)
• Few effective channels for communication
– Limited local staff with main office authority
– Shareholder contacts, activism unlikely
Peru
case
Peru:
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Minerals 62% of exports
25% tax revenues, 20% FDI
6% GDP, 20-50% regions
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26% Chinese world mineral M&A
34% M&A in Peru from China
First projects 1992-93
Second wave 2007+
8 major firms
China #2 trade partner
FTA with China 2009
Peru context
• Since early 1990s, governments promote foreign investment with
favorable tax, legal measures.
• Since 2006, renewed courting of China - FTA framework
• Relatively weak State capacity/will to regulate firms
• Challenges: property rights (private, community), water rights,
environmental impacts, labor, indigenous – even Church.
• Increasing “socio-environmental” conflict. Communities vs firms,
with State on sidelines.
• Chinese investing in conflictive situations
Major mineral investments
• 1992, Shougang – buys government-owned property
• 2007-2010, Chinese acquire private juniors
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Zijin Consortium, Rio Blanco copper, 186m
Chinalco, Toromocho copper, 792m
Minmetals/Jiangxi, Galeno copper/gold, 432m
Nanjinzhao, Pampa de Pongo iron, 100m
China Sci Tech, Mina Justa copper, 240m
• Total announced mining investment in next five years
$6.8 billion
• Also oil since 1993, CNPC - today 40% of total oil
production in Peru. Amazon and coast.
Case 1: Shougang Corporation
• Fourth largest steel company in China, 90 year history
• 1992 – buys Hierro Peru (Marcona) for US $188 million ($311 bid)
– First privatization for Peru mining sector
– Largest foreign investment for China in LA
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Labor conflicts: 350 Chinese staff, fire locals, resist union
Local government conflict over water, electricity
Environmental impact: outdated facilities, fines for non-compliance
Initial investment commitment not honored, govt assumes $266 debt
• Three anti-corruption investigations since 2002, shelved due to
perceived threat to expansion, other Chinese investments
• What learning here?
Case 2: Zijin Consortium
• Copper project on Northern border with Ecuador, UK junior firm
• Inherited troubles: non-mining area, fragile environment, land rights
disputed, strong opposition from local communities, violence
• Three Chinese investors (Zijin, Tongling, Xiamen C&D) - mixed
• 2007: Only bidder, recruited by diplomats-turned-directors
• Chinese CEO, little change in community relations, conflicts persist
• 2008: President Garcia visits China, meets CEOs, promises help
• Project declared National Priority, protesters charged as “terrorists”
• Fined in Peru for safey violations, EIA
not approved, expanded concessions
• 2009: more violence, project stand-off
Case 3: Chinalco
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Large new copper project in Junin, Canadian junior
Requires relocation of entire town (5,000)
2007 bought by Chinalco, “national champion” SOE
Non-Chinese (expat) CEO, former head of world-class
Antamina copper mine
• Staff 99% non-Chinese, local experience
• Extensive investment in environmental programs,
cleanup old Acid Water Treatment Plant
• Greater engagement with local community, authorities,
social investment – residents approve move.
Most likely to succeed?
Conclusions
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Chinese investment a major opportunity for commodity producers, but
development impacts mixed
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National level: ability to “harvest” these resources for sustainable
development, depends more on will and capacity of national policymakers and vigilance of civil societies.
– Chinese more positive force, when local states are (Chile, Brazil)
– High potential for conflict when not the case (Peru)
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Local level: reducing negative impacts still relies heavily on voluntary action
of firms
– Chinese less experienced with stakeholders, unions, media
– Lack of transparency, accountability
– How fast can they learn?
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Latin Americans also need to learn more about China, its firmst and
government institutions – urgently.
Fin