Few Tips for You Tu Invest in China - Cnmining

Introduction 

*  All mineral resources in China are owned by the State 
*  Exploration rights and exploitation rights are licensed as “quasi-property rights” as their exclusivity is not guaranteed and they are not fully freely alienable 
*  Exploration licensees have a “priority” to obtain exploitation rights 

Transferability of Mining Rights 

*  Transferability of mineral rights in China is restricted to applicants with technical and financial ability 
    –  The transferability of exploration rights is subject to compliance with minimum exploration expenditures and other conditions before approval is granted 
    –  The transfer of exploitation rights is subject to a further set of conditions 
*  Current Chinese law states that:  
    –“profiteering by speculating in exploration and mining rights is prohibited”

*  Mining rights can be mortgaged; however, established procedures are not yet in place

Enforceability of Mining Agreements

*  To minimize costs, foreign companies in China generally enter into an agreement before establishing a statutory approved cooperative joint venture (CJV) 
*  Enforceability of pre-CJV agreements is uncertain as Chinese law is silent on the protection of foreign party interests under such agreements without a statutory approved CJV or an  exploration licence 

Establishing A Mining Business in China 

A multi-level, multi-ministry process: 

(1) Review theForeign Investment Catalogue (certain mineral activity is permitted, encouraged, restricted or encouraged)

(2) Procedural roadmap to be followed:
–  National Development and Reform Commission (“NDRC”) reviews “project application reports” 
–  Ministry of Commerce examines contracts and articles 
–  State Administration of Industry and Commerce  (“SAIC”) oversees business registration 
–  MOLAR examines, registers and issues mining licenses.  

 Conclusion 

*  China is progressing in its attempts to make the acquisition of mineral rights by foreign investors analogous to the process in most Western countries, although it has not yet fully succeeded 
*  Chinese mineral laws are constantly evolving to encourage foreign investment in certain mineral commodities 
*  Inter-departmental control over mineral industry development needs to be settled 

Additional Considerations 

The following additional subjects, among many others, are of utmost importance in considering investments in China: 

*   Extensive due diligence
*   Consider best legal vehicle to use (e.g. cooperative joint venture)
*   Impact of China’s entry into the World Trade Organization (“WTO”)
*   China’s compliance with international legal principles and norms and mining industry standards
*   China’s compliance with multilateral and bilateral treaties and conventions

*   Regional differences in Chinese law and the application of such law by Chinese courts
*    Importance of foreign parties and their joint venture partners strictly complying with the laws of China
*    Severe implications of non-compliance with Chinese laws  (e.g. obtaining necessary local, national and state approvals)
*    Contract laws of China:- different views on their application; distinctions between contracts, memorandums of understanding and letters of intent; caution on China's preference to resolve disputes by “friendly consultation” and mediation rather than by provisions of contracts (e.g. arbitration provisions); and legislative restrictions on what can or cannot be in certain contracts notwithstanding general contract law

*    Taxation: taxes, business levies, custom duties (business and personal); tax treatment varies depending upon the location, nature of the business and the nature of goods
*    Foreign exchange and repatriation of funds - limitations thereon
*    Environmental liability exposure (business and personal)
*    Labour laws
*    Care on reliance on Guanxi (network) or claims of relationships to shortcut or avoid compliance requirements
*    The very best of legal advice, Chinese partners and other advisors who are highly respected and experienced