The Basic Situation of Land and Resources in Western China
and the Related Investment Policy

The Ministry of Land and Resources,China    May 31, 2000

I. Western China has abundant land and resources, with a huge potential for development and utilization.

Western China includes 10 provinces, autonomous regions and municipalities-Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shanxi, Gansu, Qinghai, Ningxia and Xinjiang. Abundant supply, under-development and utilization and therefore, a huge potential for further development characterize the land and resources in the western area.

Western China covers a land of 537.196 million hectares, accounting for 57% of China's total, with a per capita coverage of 1.92 hectares. Of that, 36.9647 million hectares are cultivated land, representing 28.4% of China's total farmland, with a per capita coverage of 0.13 hectares, while unused land covers 195.8987 hectares, making up 79.9% of China's total.

Forests and grasslands need to be reclaimed from sloped crop fields in 14 central and western provinces, including 10 western provinces, autonomous regions and municipalities as well as Shanxi, Inner Mongolia, Hebei and Hubei. Western China has 5.2333 million hectares of sloped farmland with a degree above 25, accounting for 86% of China's 25-degree-and-over sloped farmland and 8% of the farmland in the 14 provinces, municipalities and autonomous regions.

Western China has an obvious comparative advantage in mineral resources, with excellent conditions for mineralization, and there are 130 types of mineral with proven reserves. Of the 45 important types of mineral, the existing reserves of 13types, including potassium chloride and natural gas in Western China make up over 50% of China's total, enjoying an absolute advantage. The reserves of other 9 types, including lead and copper constitute 30-50% of China's total, enjoying a comparative advantage. Western China also has plenty of coal and oil reserves and will become the next important base of strategic energy in China.

Water resources in Western China are of special concern. Due to the droughts in Northwest and a grave shortage of surface water in karst regions in Southwest, the development and utilization of ground water is of vital significance for the life and production of local people. For now, 12.3 billion cubic meters of ground water, accounting for 28% of the total exploitable amount is extracted in Western China every year. That demonstrates great potential.

Geological exploration of Western China is still inadequate, but the existing exploration and survey have proved huge potentials for discovering new mines. The development scale and output value of Western China's mineral resources as a percentage of China's total are still small, compared to the percentage of proven reserves. The prospect for development and utilization is therefore broad. At present, the mining industry has already become a mainstay in Western China. The mining industry makes up 18.47% of the local gross industrial output value, 6.29% of the local GDP, 8.26 and 2.17 percentage points higher than the national average. Except for Chongqing, the mining industry of the other western provinces and autonomous regions constitutes more than 10% of the local gross industrial output value. The proportion is even over 25% in half of those provinces and autonomous regions. Compared with eastern and central China, the resources advantage of western China will be an irreplaceable factor that supports the local and even the holistic economic development in a long time to come. It will play a crucial role in the economic take-off in western China.

II. Western investment in the mineral industry in Western China will be encouraged further.

Abundant mineral resources, with a good prospect of development and utilization, are a prominent advantage of Western China. There is no question that the development and utilization of mineral resources will play a significant role in implementation of the western development. The development of minining in western China will be based on the principle of "two types of resources and two markets" to attract foreign capital. In order to attract foreign investment in mining in western China, the state has already formulated or is formulating a host of incentive policies.

1. Unincorporated corporations with foreign participation will be granted the exploration rights to prospect for mines. It is specified that unincorporated corporations with foreign participation will be able to apply directly to the Ministry of Land and Resources for the rights of exploration and the qualifications of a geological survey unit. This important measure will enable foreign companies investing in mineral exploration to have access to exploration rights and geological survey qualifications. This will be a fundamental safeguard of the interests of investors and will change the single approach adopted in the past by foreign companies to seek Chinese partners with survey qualifications and mining rights.

2. The investment environment in the mining sector will be improved and the procedures will be streamlined. According to regulations, beginning in November 1999, the Ministry of Land and Resources has made the Yunnan province a trial base of improving the environment of foreign investment in the mining industry. The Yunnan provincial land and resources administration has been granted the rights to review, approve, register and issue license to foreign companies that invest in exploration and mining activities. It means that the procedures relating to foreign-participated exploration and mining activities in Yunnan can be completed locally, instead of going through the Ministry of Land and Resources. It should be pointed out, however, that the local review and registration rights are not applicable to the special types of mineral such as petroleum, natural gas and radioactive mineral.

3. The policy of reducing or exempting the exploration and mining rights fees will be implemented. In order to direct funds into the mineral protection and development activities in western China and the remote and poor areas, the Ministry of Land and Resources is trying to formulate a "Measure of Reducing or Exempting the Charges of Using the Exploration and Mining Rights". It will stipulate that the eligible mine owners are entitled to different degrees of lower or free charges of using the exploration and mining rights.

4. The foreign companies investing in prospecting for and developing mineral resources will enjoy tax incentives according to the existing regulations on foreign-invested companies and wholly foreign-owned companies. Foreign companies that invest in holistic utilization of mineral resources or engage in technical cooperation with large and medium-sized domestic mining companies will enjoy certain preferential policies. For instance, if foreign investors develop paragenetic and associated minerals besides the major minerals, half of the mineral resources compensation fee will be forgone. If foreign investors adopt sophisticated technologies to develop and utilize the low-grade mineral resources that are difficult to recover and refine, half of the mineral resources compensation fee will be forgone. Foreign investors that invest in the exploration and development of the mineral resources in the western region will be entitled to the preferential policy of one-year exemption and two-year 1/2 reduction of the charges of using the exploration and mining rights.

In addition, the Ministry will consider formulating other preferential policies to encourage foreign investors to participate in China's mining industry and contribute to its development.