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Mining & Minerals

A major target for Chinese overseas investment is the mining industry. Since the early days of China’s “Going Out” strategy, companies have been encouraged to invest in strategic mineral resources. Initially this was to increase access to resources needed in China, and more recently to also feed into the global supply chains that Chinese mineral and manufacturing companies are increasingly integrated into. The Belt and Road vision document specifically states that China should increase cooperation in the exploration and development of mineral resources.

Chinese mining companies are actively exploring for and mining a range of minerals across the world. Overseas mining is dominated by state-owned enterprises (both central and larger provincial SOEs). For example, Norinco runs the Letpadaung Copper Mine in Myanmar; China Nonferrous Metals Corporation is developing the Dairi Prima Mineral lead and zinc mine in Indonesia; and Tongling Nonferrous Metal Group and China Railway Construction Corporation have invested in the Mirador Mining Project in Ecuador. There are also a number of large private enterprises, such as China Molybdenum and Huayou Cobalt, which are active across the world, including sourcing cobalt from the Democratic Republic of Congo.

Mining investment and mineral supply chains are often complex and involve a range of actors. In countries with undeveloped infrastructure, such as Guinea, Chinese banks have committed funding to support development of new mines, but also railways, roads, energy and port infrastructure in order to make mining viable. Chinese companies are developing major mining operations in the country, which may involve a range of contractors for various aspects of these projects.

Additional corporate actors become involved as the raw materials from mines enter supply chains that involve processing, shipping and refining those materials, as well as trade and sale to end users.

These investment chains will often involve both Chinese and non-Chinese actors. For example, Tsingshan Holding Group processes nickel in the Indonesia Morowali Industrial Park, and this nickel is sourced from local mines that are owned by Indonesian, Chinese and other international actors. The processed nickel is sold on the global market, much of it for use in batteries in electric vehicles produced by Chinese and non-Chinese companies. Likewise, bauxite from mines in Guinea is shipped to China and processed by companies including Aluminum Corporation of China (CHALCO) and China Hongqiao. This is then sold on the global market and ends up in products like cars and planes.

Chinese companies involved in overseas mining projects are subject to the policies and guidelines covered in the Standards section of this guide, as well as those applying to International Contracting. Likewise, banks financing such projects are expected to uphold Green Credit principles, as discussed in the Financial Sector section. Several companies also have their own internal policies related to environmental and social issues and some have signed on to international best practice initiatives.

Practical Advice: Researching Mineral Supply Chains

By mapping a project’s supply chain beyond the actual mine itself, you can get a clearer picture of all of the actors that make a project possible, and in the process identify which actors may be useful pressure points. Actors on the ground will be subject to local laws and regulations but may also have their own internal policies related to environmental and social issues and may have made commitments to international best practice initiatives. They may also have policies on mineral sourcing and/or may have signed on to industry-led supply chain certification schemes.

In the case of Chinese companies, they may be expected to follow certain guidelines related to overseas investment and mineral sourcing. In cases where you are unable to engage with the Chinese actors, other international stakeholders may be more accessible entry points.

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Mining and Mineral Industry Standards

Investments in mining are often high risk, especially in countries with weak regulatory systems. There are many examples around the world of badly managed mining and mineral processing projects causing severe harms to both the environment and communities. In response to this, and the associated negative publicity and pressure from shareholders and buyers, many mining companies have put in place their own policies and mechanisms that aim to mitigate negative impacts and address issues when they occur.

Likewise, many companies that buy the products of mining activities have systems in place that aim to ensure their supply chains are not connected to projects that are linked to conflict or child labor. This creates pressure on mining companies to improve operations, and in some cases has led to positive policy development in Chinese companies and industrial bodies. For example, after child labor was documented in the supply chains of several Chinese companies sourcing cobalt from the Democratic Republic of Congo, major companies were pushed to take action. China Molybdenum adopted and published policies on a range of issues, including human rights, environment and community, and established a complaints mechanism hosted by a third party. Huayou Cobalt committed to implement a range of international best practice guidelines, establish a supply chain due diligence system and allow third-party supply chain audits.

If you are looking at a specific mining company, it is important to look at what policies they have in place, and what initiatives and standards they have committed to uphold.

Several key guidelines related to social responsibility in overseas mining were issued by the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (CCCMC), a non-profit industry association previously affiliated with the Ministry of Commerce. While CCCMC does not have regulatory powers and its guidelines are voluntary, it works closely with the government to promote “self-regulation” of the industry. Its mandate includes guiding and monitoring legal compliance of its members and carrying out supervision, inspection, and examination when authorized by the government

CCCMC published the first sector-specific guidelines for investment in overseas mining projects in 2014 and updated them in 2017. They published guidelines on due diligence in mineral supply chains in 2015 (these are currently being updated). These guidelines were developed and published by CCCMC under the guidance of the Ministry of Commerce and are described in more detail below, along with CCCMC’s Responsible Cobalt Initiative.

Guidelines for Social Responsibility in Outbound Mining Investments

In 2017, the revised Guidelines for Social Responsibility in Outbound Mining Investments were issued by the CCCMC. These guidelines have a broad scope and apply to overseas mineral and energy resource exploration, extraction, processing and investment projects, including related activities such as mining-related infrastructure development, in which Chinese companies are invested.

The CCCMC guidelines were originally developed with support from the German government. In addition to reflecting existing Chinese state guidelines on outbound investment, they also take into account the United Nations Guiding Principles on Business and Human Rights, the ten principles of the United Nations Global Compact, as well as other international standards and initiatives. The mining guidelines contain provisions that, if implemented, could provide protection for people and the environment in and around Chinese mining projects.

The guidelines follow seven main principles:

  • Ensure compliance with all applicable laws and regulations
  • Adhere to ethical business practices
  • Respect human rights and protect the rights and interests of employees
  • Protect the environment and conserve resources
  • Respect stakeholders, promote inclusive development
  • Strive for transparency
  • Strengthen responsibility throughout the extractive industries value chain

You may consult the text of the guidelines for full detail.

Practical Advice: What power does the CCCMC have to enforce these Guidelines?

The mining guidelines are currently one of the most detailed guidelines on managing environmental, social and human rights impacts of Chinese companies operating overseas. However, they do not include any enforcement provisions that CCCMC can use to require companies to comply or punish non-compliance.

The CCCMC has committed to disseminate the guidelines and encourage companies to assess their social responsibility according to these principles. It also plans to conduct evaluations of company performance against the guidelines. This falls far short of an accountability mechanism, but referring to these standards in your communications with companies and in other advocacy may still strengthen your position. Informing CCCMC about your concerns may also be helpful.

The Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains

In July 2022, the CCCMC released the Chinese Due Diligence Guidelines for Mineral Supply Chains, which is the updated version of the 2015 Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains. The objective of the guidelines is to operationalize an article from the guidelines on social responsibility (discussed above) that calls for companies to conduct risk-based supply chain due diligence, with a focus on conflict-affected and high-risk areas. The second edition of the Guidelines is available in Chinese and English. The first edition is also available in French and Spanish.

The due diligence guidelines were developed with support from the Organization for Economic Co-operation and Development (OECD). They aim to align Chinese company processes with international standards and provide guidance on how to identify, prevent and mitigate the risks of directly or indirectly contributing to conflict, serious human rights abuses and serious misconduct. The updated guidelines reflect some of the new developments of global standards, with further specification of the due diligence requirements for enterprise and  new requirements regarding remedy. The guidelines use the UN Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas as a foundation. The guidelines are detailed and comprehensive, but they are voluntary. The CCCMC has also launched a Mineral Supply Chain Grievance Mechanism in July 2022, although affected communities do not seem to be the primary complainants of this mechanism.

Mineral supply chains can be complex, and conducting proper due diligence is often a challenge for companies. Many Chinese companies lack capacity and experience in this area. Some companies may not be aware of problems associated with their suppliers and the mines they are sourcing from, and they may not know how to address these issues when they emerge. This makes the due diligence guidelines an especially useful tool for referencing if you engage with Chinese mineral supply chain actors.

Practical Advice: What is due diligence?

Due diligence involves the investigation of a business, project or person prior to entering into a business relationship. For example, when a company is considering a joint venture with another company, it will investigate that company’s financial situation. It may also look at its reputation and history, to ensure that it is not connected to harmful projects, illegal activity or other scandals. In the mining and minerals sector, due diligence can be used to ensure that companies are not sourcing minerals from companies and projects that are implicated in serious human rights abuses or environmental harms.

Due diligence does not end once a contract is signed or a project is approved. Rather, it is an ongoing risk management process throughout the life of a project or other business activity. Human rights due diligence is an ongoing process to identify, prevent, mitigate, account for and remedy a company’s human rights impacts.

The CCCMC due diligence guidelines apply to all Chinese companies that are engaged at all points in the supply chain of mineral resources and their related products, including exploration, extraction, trading, transporting, processing and utilization. This includes companies registered in China and overseas companies which are wholly- or majority-owned or controlled by a Chinese entity or individual. The guidelines cover all mineral resources and related products.

The guidelines include two risk categories: one refers to conflict and human rights, the other to environmental, social and ethical issues (these risks are expanded in Section VI of the guidelines). The guidelines also highlight “red flags” of potential risks, connected to the origin of resources (Section V). If a company identifies risks and/ or the “red flags” defined in the guidelines, it is expected to collect additional information about chain of custody or the traceability. If risks do emerge, companies have several options available. Depending on the severity of risk, downstream companies can:

  1. Continue trade with the refiner throughout the course of measurable risk mitigation carried out by the refiner in accordance with Annex I of the Guidelines;
  2. Temporarily suspend trade with the refiner while the refiner is pursuing ongoing measurable risk mitigation; or
  3. Disengage with a refiner in cases where mitigation appears not feasible or where the refiner has failed to respond to risks in accordance with the risk management strategy outlined in Annex I. 

Under the guidelines, the level of due diligence expected of companies in the mineral supply chain depends on the circumstances and is affected by factors such as the size of the company, the nature of the product or services involved, the position of the company in the supply chain, and the overall level of risk in the supply chain.

You may consult the text of the guidelines for full details.

Cobalt Refiner Supply Chain Due Diligence Standard

The CCCMC has also launched the Responsible Cobalt Initiative. This includes members from China, such as Huayou Cobalt, and major international brands including Daimler, Apple and Volvo. The initiative was established with support from the OECD.

The Responsible Cobalt Initiative has issued the Cobalt Refiner Supply Chain Due Diligence Standard. This builds on the CCCMC due diligence guidelines but with a specific focus on cobalt. If you are concerned about harms connected to a cobalt mine or supply chain, you could also consult this standard.

Practical Advice: Using the CCCMC Guidelines

The guidelines covered here are more detailed than overseas investment guidelines issued by the government. They cover many issues, including respect for host country law and human rights, environmental protection and communication. This provides a strong basis on which to assess a Chinese company’s conduct. The guidelines have a broad focus, and they apply to all stages of the mining process and to associated facilities, not just extraction activities.

These guidelines are therefore relevant if you are concerned about a Chinese company that is involved in exploration, processing or trading of minerals, as well as companies that are involved in related investments, such as providing machinery or developing infrastructure, such as roads or ports to support a mine.

If you have concerns about a mine that is either proposed or operational, you can utilize the mining guidelines in conjunction with the due diligence guidelines to conduct your own risk or impact assessment. You can assess the company’s conduct against the social responsibility issues in the mining guidelines described above, as well as the related risks identified in the due diligence guidelines. The assessment can serve as evidence when engaging the buyers of the products from the mine, financiers and regulators. Given CCCMC’s role in supporting self-regulation of the industry, it may strengthen your advocacy if you inform CCCMC of the assessment results.

You should refer to the original version of the social responsibility and due diligence guidelines for full details.