Cynthia Sanborn

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					    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:
•   Minerals 62% of exports
•   25% tax revenues, 20% FDI
•   6% GDP, 20-50% regions

•   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
   –   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

•   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
• 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
•   Chinese investment a major opportunity for commodity producers, but
    development impacts mixed

•   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)

•   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?

•   Latin Americans also need to learn more about China, its firmst and
    government institutions – urgently.
Fin

				
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