1. No category

Geir Helgesen, Senior researcher
Nordic Institute of Asian Studies (NIAS),
University of Copenhagen,
[email protected]
Why Asia?
Background Paper for the Committee for Greenlandic Mineral Resources
to the Benefit of Society
Co-authors:
Researcher Aki Tonami (NIAS)
Research Assistant Nik Bæk Heilmann (Copenhagen Business School)
Copenhagen, December, 2013
Acknowledgement
The Authors would like to thank Dr. Nis Høyrup Christensen (Dansk Industri), Professor
Jongkun Choi (Yonsei University) and government officials from the three countries for their
cooperation. The opinions and views expressed in this report are the opinions of the designated
authors and do not reflect the opinions or views of any organization.
The Asia team want to extend its appreciation to the reviewer of this section, research assistant
Ras Tind Nielsen, consultant at ReD Associates, Copenhagen.
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
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Table of contents
Acknowledgement ............................................................................................ 2
1. Background .................................................................................................... 4
Why Asia? ............................................................................................................................................................................................... 4
Relations between China, Japan and ROK................................................................................................................................. 5
China and Greenland ...............................................................................................................................................................................6
Relations between China, Japan and ROK................................................................................................................................. 9
2. FDI and Raw materials market of East Asian countries ................10
China ...................................................................................................................................................................................................... 10
FDI in the natural resources sector: ’Go Out’ policy............................................................................................................... 10
Characteristics of Chinese FDI in mining .................................................................................................................................... 11
Supply and demand for key natural resources......................................................................................................................... 12
Supply of natural resources .............................................................................................................................................................. 12
Japan....................................................................................................................................................................................................... 17
The Role of the Government in mining......................................................................................................................................... 17
Japanese FDI ............................................................................................................................................................................................. 18
Supply and demand for key natural resources......................................................................................................................... 20
Republic of Korea (ROK, South Korea) .................................................................................................................................... 25
The raw materials market in South Korea ................................................................................................................................ 25
A major energy importer .................................................................................................................................................................... 27
Korea’s foreign policy and its economic implications........................................................................................................... 29
3. Summary and Implications .....................................................................32
APPENDIX .......................................................................................................... 34
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1. Background
Why Asia?
Asia is defined as 1:
•
•
•
•
The world's largest and most populous continent, located primarily in the eastern and northern
hemispheres.
It covers 8.7% of the Earth's total surface area and comprises 30% of its land area.
With approximately 4.3 billion people, it hosts 60% of the world's current human population.
Asia is defined as comprising the eastwards four-fifths of Eurasia. It is located to the east of the
Suez Canal, the Ural River, and the Ural Mountains, and south of the Caucasus Mountains and the
Caspian and Black Seas. It is bounded on the east by the Pacific Ocean, on the south by the Indian
Ocean and on the north by the Arctic Ocean.
In this report, we focus on three countries in East Asia, namely, China, Japan, and Republic of
Korea (ROK). Three reasons why we chose three countries are:
a) They have shown an interest in the development in the Arctic region through applying and being
accepted to be Permanent Observers at the Arctic Council; they are NOT traditional players in the
arctic – they are NEW players, who have recently become highly interested in the region’s
resources. Therefore it is urgent and necessary to understand their interests and strategies for
the region
b) Together they produce 75% of the Asia region's GDP (See Figure 1). China’s economy was the
world’s second largest, with that of Japan being the third, and that of ROK being the 15th by
nominal GDP in 2012 2;
c) They have established companies that trade oil, gas and minerals.
1
2
http://en.wikipedia.org/wiki/Asia
http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx
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Singapore; Hong Kong;
Philippines; Pakistan; 231,88 ;
276,52 ; 1% 263,02 ; 1%
250,44 ; 1%
1%
Malaysia;
Thailand; 303,53 ; 1%
365,56 ; 2%
Vietnam; 138,07 ;
1%
Others; 313,62 ;
2%
Taiwan;
473,97 ; 2%
Indonesia; 878,20
; 4%
Republic of Korea;
1.155,87 ; 6%
China; 8.227,04 ;
40%
India; 1.824,83 ;
9%
Japan; 5.963,97 ;
29%
Figure 1 Composite of Asian GDP (in billion USD, by author based on data from IMF)
Relations between China, Japan and ROK
China in the Arctic
A new “strategic buyer” approach has been proposed by a Chinese scholar to best describe
China’s recent Arctic course of action in accessing resources. Different from more assertive tone
seen previously, Chinese scholars and diplomats have begun designating China as a "near-Arctic
state” more recently.
One of the more recent signs that China is interested in the Arctic resource development,
particularly hydrocarbon, was seen when President Xi Jinping and Russian President Vladimir
Putin met in March 2013. Xi and Putin signed an agreement that includes accords such as: A
Russian Oil Company called Rosneft, which is the world’s biggest oil producer by output, will
borrow 2 billion USD from China Development Bank, and Rosneft to offer 25 years of oil
supplies and an access for China National Petroleum Corp. to Arctic resources. The China
National Offshore Oil Corporation (CNOOC Group) has partnered with Eykon Energy, an
Icelandic company, to bid for an exploration license off the northeast coast of Iceland.
Committee for Greenlandic Mineral Resources to the Benefit of Society
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China has also begun to purchase shares in various resource development companies
throughout the circumpolar north, including Canada, focusing on midlevel corporations and
offering premiums on their stock purchases.
The Chinese government has also increased its funding for Arctic research and set up a polar
institute in Shanghai, and in 2012 sent the Chinese icebreaker Xue Long through the Northeast
Passage above Russia and Scandinavia, presumably to determine the suitability of using that
route as a commercial waterway. It is currently building another icebreaker and planning three
Arctic expeditions in 2015. Furthermore, a recent study indicates that China’s output of Arctic
publications now exceeds that of India, Japan and South Korea combined.
China and Greenland
Of various Arctic-related activities of China, with regards to Greenland, China has been active in
the resources sector. A Chinese company called Sichuan Xinye Mining, which is owned by the
Sichuan provincial government, has shown interest in the project known as the ‘Isua Project’
together with a British company called London Mining3. In 2011, the Chairman of Sichuan Xinye
told the Chinese media that the iron ore deposit in Isua had been targeted as what could be a
future mine investment by the company. The article described that a report from the website of
China's Ministry of Land and Resources said that Sichuan Xinye held preliminary discussions
with London Mining, who was the site's mineral rights owner, in hopes of eventually taking over
the entire site. Neither an exact timetable nor financial terms have been announced, however 4.
In 2012, the same Chinese media reported that Sichuan Xinye, London Mining and Greenland’s
state resource department were still under negotiation over the Isua Project. 5 At the time of
writing, the initial plan proposed by London Mining to start production at the site in early 2015
appears hugely delayed. The company is reported to be still in need for further 2.35 billion USD
for the project to start. 6
Some analysts claim that China is concerned about Greenland’s increasing presence in the field
of rare-earth minerals 7. The reason behind is the fact China dominates the world’s supply of
rare-earth minerals, providing over 90% of the world’s production, but it has only 48% of the
world’s known reserves of rare earths. 8 The monopoly allowed the Chinese companies and the
government to be in an advantageous position in the market, such as by imposing export quotas
on rare-earth minerals 9. To bolster its strategic reserves, industry sources said China was likely
to purchase billions of yuan of rare-earth minerals starting in September 2013 10.
In 2012, the Institute of Mineral Resources of Chinese Academy of Geological Sciences opened
its office as the only Chinese university present in Greenland 11. In early July 2013, a Chinese
investment delegation visited Nuuk, Greenland to seek business opportunities in Greenland.
Jakobson and Peng, China’s Arctic Aspirations, SIPRI Policy Paper No. 34
http://english.caixin.com/2011-12-07/100335609.html
5 http://english.caixin.com/2012-11-06/100456915.html
6 http://www.nunatsiaqonline.ca/stories/article/65674prospects_fade_for_huge_greenland_iron_mine/
7 http://www.icenews.is/2013/07/27/china-concerned-about-greenland-rare-earth-activity/
8 The USGS Mineral Commodity Summaries 2011.
9 http://www.gwmg.ca/html/about_rare_earth_elements/key_stistics/index.cfm
10 http://www.chinamining.org/News/2013-09-24/1379990556d64083.html
11 Grønlands Selvstyre: Redegørelse om råstofefterforskning 2012.
3
4
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Approximately 20 representatives from the Chinese National Bank, the CDB, and two Chinese
mining companies, formed the delegation. 12
Japan
Japan’s approach on the Arctic has been “planting flags today, to be used tomorrow.” Japan has
been long involved in the Arctic through scientific research. The Japanese shipping industry was
one of the first to conduct an international research to investigate the economic feasibility of the
Northern Sea Route (NSR) already in the 1990s. There are more than few Japanese companies
that conduct business in the Arctic Region, whether it is to secure shipping routes, energy
resources or fishing resources. Meanwhile, these have not necessarily led to the nation-wide
Arctic campaign or a grand Arctic strategy while practical measures are taken at a ministerial
level. The political importance of Arctic affairs is still considered relatively lower for the
country, compared to other pressing international and/or domestic issues.
The Japanese polar research institute, the National Institute of Polar Research (NIPR) have
participated in international research projects that were carried out in Greenland, namely,
NGRIP (North Greenland Ice core Project, 1999-2003, the operation center was located in
Kangerlussuaq and at the Department of Geophysics, University of Copenhagen) 13 and NEEM
(The North Greenland Eemian Ice Drilling, 2007-2011, hosted at Kangerlussuaq, Greenland and
University of Copenhagen). 14 The Japanese scientific researchers have independently visited
Greenland for a long time in the past, partly because it is much easier to go to the Arctic than to
the Antarctic, where Japan has a longer research history since the 1950s. Arctic-related
researches in Japan were not very much coordinated. The NIPR has initiated a major new Arctic
research project since 2011, titled GRENE project (Green Network of Excellence), and the
project attempts to coordinate 35 institutes and 300 scientists who have previously been doing
something with the Arctic independently. 15 Some of the results from the GRENE project have
already been released on major scientific journals. 16
JOGMEC (Japan Oil, Gas and Metals National Corporation) is under the auspices of the Agency for
Natural Resources and Energy of Japan and has participated in an exploratory license in the
KANUMAS project in Greenland. The KANUMAS project was a regional seismic program that was
initiated at the end of 1989. 17 This project began in 1989 and is a joint geological and
geophysical survey in the northwest and northeast offshore areas of Greenland. An international
consortium of several oil companies, such as JOGMEC, BP, Chevron, ExxonMobil, Shell, Statoil
and Nunaoil, (the State oil company of Greenland), were jointly awarded the license from the
Greenlandic government. 18 Oil extraction is expected to start in 2013. 19
12 Bech-Bruun, 中国投资代表团访问格陵兰岛 (Chinese investment delegation visits Greenland).
13 http://www.gfy.ku.dk/~www-glac/ngrip/index_eng.htm
14 http://www.isogklima.nbi.ku.dk/neem
15 http://www.nipr.ac.jp/grene/about.html
16 For instance, Abe-Ouchi, A., Saito, F., Kawamura, K., Raymo, M. E., Okuno, J. I., Takahashi, K., & Blatter, H. (2013). Insolationdriven 100,000-year glacial cycles and hysteresis of ice-sheet volume. Nature, 500(7461), 190-193.
17 http://www.bmp.gl/images/stories/petroleum/exploration_exploitation/201213/BMP_Invitation_letter_North_East_Greenland.pdf
18 JOGMEC, 'Oil and Gas: JOGMEC's activities [Oil and natural gas resources field]'.
19 Interview with a Japanese government official, August 2013.
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The Royal Greenland, based in Greenland, sells 25% of deep water shrimp imported to Japan.
The Royal Greenland has a subsidiary in Japan (The Royal Greenland Japan) and through this
company Greenlandic halibut and halibut from the Bering Strait are sold to the Japanese
market. 20
Republic of Korea (ROK)
Interest of the Republic of Korea (ROK, hereafter South Korea) in the Arctic region, including
Greenland, is mainly focused on securing natural resources and maritime cargo routes going
through the high north area. While remaining economic interest, such interests are increasingly
becoming strategic as South Korea's efforts to secure natural resources and transport its export
goods are important indications for how it can sustain the current economic development.
In the 21 century the Arctic area including Greenland may to South Korea become what the
Middle East was in the 20th century in its contribution to Korea's economic development with
its energy resources and construction opportunities. The recent MOU between Greenland and
South Korea has allowed bilateral cooperation for a joint scientific investigation and technical
work, with regards to development and utilization of natural resources.
Regarding the problems of safeguarding of the nature, while developing new industries, South
Korea, as the other relevant East Asian countries, have experienced the negative side of fast
economic development. Currently they are strengthening their awareness of the importance of
the environment and its protection.
South Korea’s main interest is to secure stable nature resources such rare earths. The Chinese
near monopoly on rare earths has motivated South Korea to look for alternative providers, and
in this respect Greenland is a possible partner. As the other prospective Asian partners South
Korea has the economic potential to invest in this area.
Since the visit to Greenland of President Lee, and the visit of the Prime Minister Kuupik Kleist of
Greenland to Korea, the media in Korea depict Greenland as a land of opportunities for
developing natural resources and an exotic travel destination.
From a South Korean perspective, its solid experience in overseas construction projects, often
under extremely difficult conditions, should be seen as an advantage in the present
considerations regarding mining and infrastructure projects in Greenland. Moreover, as one of
the World’s most vibrant trading states, South Korea is keenly interested in using the Artic Sea
routes. In 2012 South Korea imported U$3.1 billion worth of petroleum from Europe, which was
almost 90 % increase from 2011 ($1.8 billion). Using the Suez Canal route, it normally takes 40
days plus. Realizing the substantially shorter distance through the Arctic route, the government
has been encouraging the cargo companies such as Hyundai Globis and Hanjin to use the Artic
route by providing tax incentives. Therefore, South Korea’s interest in Greenland lies in its grand
strategy to approach the Artic and perceives Greenland as potentially an important partner.
20
http://www.jetro.go.jp/jfile/report/05000370/05000370_001_BUP_0.pdf
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Relations between China, Japan and ROK
Relations between the three countries have been long and complex. Economic relations between
three countries are intertwined and mutually dependent. Meanwhile, political relations between
the three, particularly between China/ROK and Japan have been somewhat tumultuous. The
Imperial China implemented a tributary system, to which both Korea and Japan were tributaries
from time to time. China and Japan fought wars several times, the most recent being Second
Sino-Japanese War between 1937 and 1945. In 1910, Japan occupied Korea and ruled until
1945. The Japanese colonialism and war crimes committed in both countries still pose a strong
national sentiment in China and ROK. Both China and ROK have a ‘territorial dispute’ against
Japan; Senkaku/Daoyu island between China and Japan, Dokdo/Takeshima island between ROK
and Japan. China and ROK have a dispute over Socotra Rock regarding its Exclusive Economic
Zone (EEZ).
Meanwhile, attempts were made to create a regional mechanism to facilitate cooperation
between the three countries. One of the most formal and established efforts is the Trilateral
Cooperation Secretariat (TCS). The TCS was established as an international organization in
Seoul in 2011 based on “the Memorandum of the Establishment of the Trilateral Cooperation
Secretariat” signed and ratified by each of the three governments in 2010. Currently the TCS
holds three Board Members from Foreign Ministries of China, Japan and South Korea,
respectively. The TCS receives funding from three governments, hosting various meetings and
events related to politics, economy, sustainable development, and human and cultural
exchange. 21 The former Secretary General of the Nordic Council of Ministers visited the TCS in
2012, as a first step to seek possibilities of mutual cooperation between the two regional intergovernmental bodies.
Recently it has been reported that the trilateral cooperation on the Arctic affairs was suggested
at the annual Trilateral Cooperation Meeting held in Toyako, Japan in July 2013. 22
These three countries are dependent on each other in the minerals/rare-earths sector. For
instance, both Japan and ROK rely on access to rare-earths for their high-tech production
industry, while China is a major exporter (almost monopolist) of such minerals. It is clear that
the linkage between these three countries in the mineral marked, whether they see each other
as competitors or cooperating partners, will obviously affect their presence in the Arctic.
Can we expect the TCS to develop a stronger and more coordinated East Asian relationship with
Greenland? Or will they primarily remain national competitors for resources? This is also
important for Greenland’s future strategy and interaction with each of these countries.
Greenland’s approach to the three countries may affect how their relationship develops:
whether they chose competition or cooperation.
http://www.tcs-asia.org/dnb/main/index.php
The Nikkei, 日中韓、対立越え協力 [Japan, China and Korea cooperate overcoming conflicts], July 24 2013 Morning Edition,
p.9.
21
22
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2. FDI and Raw materials market of East Asian countries
China
FDI in the natural resources sector: ’Go Out’ policy
In the 12th Chinese Five Year Plan, the Chinese Government introduced the ‘Go Out’ (走出去)
strategy that encouraged its enterprises to invest overseas, coupled with ‘Bring In’ (引进来)
strategy to increase FDI from foreign companies to China. 23 As a part of ‘Go Out’ strategy, the
Plan mentioned to strengthen international energy resource development and cooperation on
resource (minerals) processing. 24
Chinese economic activities in foreign countries are a comparatively new occurrence, and when
such activity carry a Chinese flag, in an actual or in a figurative sense, there are basis for
speculations. Debates on the character of Chinese acquisitions and business practices abroad
are heavily debated in the media, among scholars and various stakeholders.
China’s outward FDI in the minerals sector was initiated in 1992 in Peru. The initial investments
marked the beginning of what would become the 'Going Out' strategy that was initiated in the
early 2000s. The strategy encourages Chinese firms to invest abroad, at times through financial
incentives such as low interest loans from state-owned policy banks. Its main objective is to
prepare Chinese businesses to compete internationally, hoping to serve as both a springboard
for successful internationalization and a preparation for Chinese firms to resist competition
from transnational firms domestically as China opens up to international investment 25.
Large state-owned enterprises (SOEs) have been the main targets and beneficiaries of the ‘Going
Out’ strategy, particularly in the oil and mineral resources sectors. While Chinese SOEs still need
administrative approval from the state-owned Assets Supervision and Administration
Commission, this is often granted as long as perceived national interests are not endangered and
the operations are deemed positive for the company’s corporate development 26.
Only permitted to exist after 1978, China’s privately owned enterprises’ (POEs) started ‘Going
Out’ to invest after the Chinese government eased its restrictions on their investing in foreign
countries in 2002. FDI for Chinese firms still requires approval from Chinese government
authorities, particularly the National Development and Reform Commission (NDRC), the
Ministry of Commerce (MOC) and State Administration of Foreign Exchange (SAFE). Approval of
POE’s FDI are often more restrictive for POEs than SOEs. Most of the Chinese POEs are small-and
medium-sized enterprises (SMEs), while SOEs are large enterprises. Thus, many Chinese POEs
go international with their own capital and/or profits 27.
http://www.gov.cn/2011lh/content_1825838.htm
http://www.cij.co.jp/service/solution/research/pdf/2011/report201105.pdf
25 Gonzalez-Vicente: Mapping Chinese Mining Investment in Latin America: Politics or Market? (2012).
26 Gonzalez-Vicente: The internationalization of the Chinese state. 2011. It seems fair to state here, that the described practice in
China have a close parallel in South Korea, why one might be cautious to see political-ideological reasons as the main factor for
this state-ist practice. The extent of the bureaucratic hindrances, however, may be different in the two Asian countries.
27 X. Huang; I. Austin: Chinese Investment in Australia - Unique Insights from the Mining Industry. 2011.
23
24
Committee for Greenlandic Mineral Resources to the Benefit of Society
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A huge increase in China’s FDI has seen it expand as a major source of investment from $270
million in 2002 to $56.53 billion in 2009 28. By 2009, China’s total FDI stock had reached $245.75
billion, with more than 1200 Chinese enterprises having invested in over 13,000 firms abroad
(See Figure 2) 29.
According to the statistics of news release of foreign investment, from January to December
2012, Newly Approved Foreign-investing Enterprises amounted to 24,925, down by 10.06%
year on year; and the actual use of foreign investment reached US$ 111.716 billion, down by
3.7% year on year 30.
Figure 2 Chinese investments in the minerals sector (2005-2010)
Characteristics of Chinese FDI in mining
According to Gonzalez-Vincente, three characteristics of Chinese mining investment distinguish
them from Western mining investments:
1. Chinese investors have a capacity to undertake significant infrastructural development to
accompany their mining projects, in certain cases easily outbidding other transnational
competitors in countries where infrastructural development is deemed a priority.
China Ministry of Commerce (MOC): 2009 Statistical bulletin of China’s outward foreign direct investment (2010).
http://www.mmsa.net/GreenSocSymp/10SilverDBS_MMSA_02042010_Final2.pdf
30 http://english.mofcom.gov.cn/article/statistic/foreigninvestment/201301/20130100012618.shtml)
28
29
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2. Chinese mining firms have limited reliance on stock markets, which allows them to
undertake projects where profits will only materialize in the medium and long term.
3. Because of access to easy credit from policy banks, Chinese investment choices are not
constrained by civil society campaigns in the same ways as major transnational
companies.
4. On a cultural note, Chinese firms tend to cluster to areas where Chinese businesses
already operate. Examples of clustering are Chinese investments in the mining sector in
Peru and Ecuador 31.
(For more information on the Chinese FDI in natural resources, see Appendix.)
Supply and demand for key natural resources 32
Domestic market in China
The Ministry of Commence (MOC) and the National Development and Reform Commission
(NDRC) jointly issued a new policy on foreign investment in China. Effective on January 30,
2012, the Government mandates that investment by foreign investors who participate in the
prospecting and exploration for iron ore and manganese and in the prospecting for, exploration
for, and exploitation of coalbed methane, natural gas, and oil, must be done through Sino-foreign
joint ventures.
The Government restricts foreign investor participation in the exploration and exploitation of
barite (in joint ventures only), gold, platinum-group metals, and silver, high-alumina clay,
graphite, phosphate rock, lithium, and pyrite. Smelting and refining of antimony, aluminium,
copper, lead, molybdenum, tin, tungsten, and zinc are also restricted. The Government allows
foreign investors to participate in rare-earth separation and smelting (in joint ventures only).
The Government bans foreign investors from participating in the exploitation of antimony,
fluorspar, molybdenum, rare earths, tin, tungsten, and radioactive materials.
Supply of natural resources
China is rich in mineral resources and was the world’s leading producer of aluminium,
antimony, barite, bismuth, cement, coal, fluorspar, gold, graphite, iron and steel, lead,
magnesium, mercury, molybdenum, phosphate rock, rare earths, salt, talc, tin, tungsten, and zinc
in 2011. China ranked among the top three countries in the world in the production of many
other mineral commodities and was the leading exporter of antimony, barite, fluorspar,
graphite, indium, rare earths, and tungsten in the world.
Gonzalez-Vicente: Mapping Chinese Mining Investment in Latin America: Politics or Market? (2012).
Data are taken from US Geological Survey Mineral Yearbook 2011 unless otherwise stated. This is due to a technical difficulty
of accessing data related to China
31
32
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Rare-earth minerals
The Chinese Ministry of Commerce announced a first-batch rare-earth export quota of 24,904 t
for 2012. The Government specified how much light or middle and heavy rare earths that each
company was allocated. This policy was different than in previous years, when the Government
had assigned export quotas without specification. The Government withheld export quotas for
companies that did not meet the environmental protection guidelines. Of 27 companies and
traders, only 9 were cleared to export rare-earth products immediately, and the total rare-earth
export volume was 10,546 t.
Analysts predicted that exports of rare metals will decrease gradually at a rate of 2% to 3% per
year in the future. A planned reduction of the value-added tax rebate and reduced export quota
on energy-intensive products would force producers to reduce their output; this would help to
protect and conserve mineral resources and minimize environmental damage. Beginning on
January 1, 2012, the tariff rate on imports of rare-earth compounds was reduced to zero from
5.5%.
Figure 3 Rare Earth Supply and Demand 2005-2015
Source: See footnote 33. ROW= Rest of the world.
Aluminium
China is a net importer of aluminium but production continued to increase in 2011, although
China’s unwrought aluminium imports came mainly from Russia, Oman, Australia, South Africa,
India, and North Korea (in descending order of volume), and the country’s exports went to the
Republic of Korea and Japan (in descending order of volume).
33
http://www.gwmg.ca/html/about_rare_earth_elements/key_stistics/index.cfm
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China followed Australia as the second ranked bauxite-producing country in the world. Owing to
the expansion of alumina production during the past 10 years, the country required extensive
imports of bauxite to meet the demand from its alumina refineries. The trend toward increased
bauxite imports was expected to continue in the future. The Government encouraged
enterprises to explore for bauxite resources in African countries and in Australia.
Figure 4 Alumina production August 2004 - August 2013. Source: See footnote 34.
During the period 2001-2008, its aluminium profile production grew at a CAGR of 25.16%,
towering over the national economic growth rate over the corresponding period. In 2011, the
production and consumption severally reached around 11.5 million tons and 10.8 million tons,
up 15.0% and 11.3% YoY respectively. Although China is the world's largest aluminium profile
producer, compared with counterparts in Europe and the United States, Chinese aluminium
profile enterprises are generally of smaller size, with low industrial concentration 35.
34
35
http://www.world-aluminium.org/statistics/alumina-production/#linegraph
http://www.marketwatch.com/story/global-and-china-aluminum-profile-industry-report-2012-2012-10-02
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Copper
Copper output increased sharply during the past several years; however China is still a net
importer of copper. China’s copper production continued to expand despite the constrained
supply of copper concentrates on the world market.
Iron and Steel
China was the world’s leading iron and steel producer, accounting for more than 57% of the
world’s pig iron production and 45% of the world’s crude steel production in 2011 36.
China's iron and steel industry reported a loss of 699 million yuan (about 113 million U.S.
dollars) in June 2013, the first monthly deficit that the overcapacity-troubled industry has seen
this year.
Oversupply in the steel sector will continue amid the country's economic slowdown, the CISA
warned, as the country has been pushing forward economic reforms. Analysts said that the steel
sector has struggled for profit since late 2011, shrinking to 0.43 yuan for every tonne of steel by
the end of last month 37.
Demand for natural resources
In 2012, China’s consumption of coal, crude steel, copper and aluminium was 3.64 Bt, 0.67 Bt,
8.84 Mt and 21.45 Mt, respectively, which accounts for 50.2 %, 44.1 %, 43 % and 46 % of
world’s consumption of these commodities. China’s huge demand for resources has vigorously
driven fast development of the global mining industry 38.
China’s demand for chromium, cobalt, copper, iron ore, manganese, nickel, petroleum, platinumgroup metals, and potash exceeded domestic supply, and imports were estimated to account for
more than 40% of domestic consumption. In 2011, China was required to import more than
60% of the iron ore needed to meet domestic demand.
In the 12th 5-year development plan for the nonferrous metals sector issued by the MIIT (The
Ministry of Industry and Information Technology), the Government estimated that the annual
rate of increase in consumption for 10 mineral commodities (aluminium, antimony, copper,
lead, magnesium, mercury, nickel, tin, titanium, and zinc) would be about 7.5% between 2011
and 2015 compared with about 15.5% between 2005 and 2010.
The apparent consumption of each commodity in 2015 would be as follows (in order of the
tonnage of consumption): copper, 24 million metric tons (Mt); aluminium, 9.7 Mt; zinc, 7.2 Mt;
lead, 6.2 Mt; magnesium, 750,000 t; nickel, 700,000 t; tin, 191,000 t; titanium, 150,000 t;
antimony, 110,000 t; and mercury, 18,000 t.
USGS 2011
http://www.china.org.cn/china/Off_the_Wire/2013-07/31/content_29587876.htm
38 https://gsa.confex.com/gsa/2013AM/webprogram/Paper227418.html
36
37
Committee for Greenlandic Mineral Resources to the Benefit of Society
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Iron and steel
China’s demand for crude steel will reach a peak during 2013 to 2015, with an estimated
amount of 680–720 Mt per year, and thereafter will run high for seven to ten years. China’s
cumulative demand in the coming 20 years will amount to 11.5 to 12.0 Bt for crude steel and
18.0 Bt for iron ore after deducting recyclable resources. It can be estimated that in the coming
20 years global cumulative consumption of crude steel will reach 39 Bt, which can be converted
into 65 Bt of iron ore. By 2030, global cumulative consumption of iron ore will exceed 120 Bt. 39
Uranium
In 2010 China needed 3600 tons of Uranium (tU). In 2020 demand is expected to be 15,000 tU.
All enrichment capacity is inland, in Shaanxi, Gansu and Sichuan provinces 40. According to the
Bureau of Resources & Energy Economics in Australia (a major exporter of uranium to China),
the growing use of nuclear fuel for power generation in China will push up global uranium
demand by 42 per cent between next year and 2017. 41 However, after a public protest, Chinese
authorities said that they were abandoning plans to construct a uranium processing plant in
south-eastern China, where residents raised concerns about its safety and potential
environmental impact. 42
Copper
Because China has limited copper resources, China imported vast amounts of copper
concentrates, scrap, anode and refined metal from overseas markets in 2011. Domestic copper
mines supplied less than 30% of the country’s requirements for copper concentrates. In 2011,
China imported 6.38 Mt of copper concentrates. China’s demand for copper will hit a peak
during 2022 to 2025, with an annual demand of 130–150 Mt and China’s cumulative demand in
the coming 20 years will amount to 240–250 Mt.
It can be estimated that in the coming 20 years, global cumulative consumption of copper will
reach 560 Mt 43.
Aluminium
China’s demand for aluminium will hit a peak during 2022 to 2025, with an annual demand of
260–290 Mt and cumulative 480–530 Mt, with 1.5–1.6 Bt for bauxite after deducting
recoverable resources. By 2030, global cumulative consumption of aluminium will stick close to
1.3 Bt; converted into 5.0–5.5 Bt of bauxite.
By 2030, global cumulative consumption of bauxite is estimated to be close to 10 Bt 44.
39 Forecast by Wang Anjian, Research Center For Stragety Of Global Mineral Resources, Chinese Academy of Geological Sciences
(https://gsa.confex.com/gsa/2013AM/webprogram/Paper227418.html)
40 (http://world-nuclear.org/info/Country-Profiles/Countries-A-F/China--Nuclear-Fuel-Cycle/#.UkRrSxZ3cwE)
41 http://www.theaustralian.com.au/business/mining-energy/global-uranium-demand-expected-to-skyrocket/story-e6frg9df1226306620160#sthash.x3NK6f7Z.dpuf
42 http://www.nytimes.com/2013/07/14/world/asia/china-uranium-plant.html?_r=1&
43 Forecast by Wang Anjian, Research Center For Stragety Of Global Mineral Resources, Chinese Academy of Geological Sciences
(https://gsa.confex.com/gsa/2013AM/webprogram/Paper227418.html)
44 Forecast by Wang Anjian, Research Center For Stragety Of Global Mineral Resources, Chinese Academy of Geological Sciences
(https://gsa.confex.com/gsa/2013AM/webprogram/Paper227418.html)
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
16
Japan
The Role of the Government in mining
The Ministry of Economy, Trade and Industry as well as the Agency for Natural Resources and
Energy of Japan are in charge of planning an overall policy on resources and energy. The Agency
releases a resource/energy strategy paper with quantitative/qualitative goals on a regular basis.
The latest one was released in June 2012, titled “a strategy on securing resources”. 45 With
regards to minerals, 30 types are designated as strategic minerals. The government does not
instruct individual companies on how to achieve the goals that the government set; they are
supposed to be a guideline, not an instruction. Although the government recognizes a need to
diversify and stabilize the sources for the future, mineral resources in Japan are not scarce at
present. 46
Table 1 Strategic Minerals for Japan (as of June 2012)
Antimony
Fluorine
Iron
Molybdenum
Rhenium
Titan
Aluminium
Gallium
Lithium
Nickel
Silicon
Tungsten
Chrome
Germanium
Lead
Niobium
Strontium
Vanadium
Cobalt
Graphite
Magnesium
Platinum group
Tantalum
Zinc
Copper
Indium
Manganic
Rare-earth
minerals
Tin
Zirconium
The Ministry JOGMEC (Japan Oil, Gas and Metals National Corporation) is under the auspices of
the Agency for Natural Resources and Energy and its mission is to “provide resources and
energy stably and permanently for the Japanese society”. JOGMEC’s mandates are: 1) to provide
financial support, 2) technology development, 3) to build and maintain resource stockpiles, and
4) to prevent mining pollution. 47 Having acknowledged that exploration development is a highrisk project, JOGMEC provides three types of financial support for Japanese companies: 1)
investments to the exploration project, 2) financing the exploration project, and 3) guarantees of
liabilities. 48 The decision is made based on the possibility of obtaining strategy minerals as well
as a supply-demand balance in the Japanese market at present and in the future. 49
http://www.enecho.meti.go.jp/info/committee/kihonmondai/28th/28sankou1-2.pdf
Interview with a ministry official, August 2013.
47 https://www.jogmec.go.jp/introduction/act_001.html
48 https://www.jogmec.go.jp/metal/financial_001.html
49 Interview with a ministry official, August 2013.
45
46
Committee for Greenlandic Mineral Resources to the Benefit of Society
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Figure 5 Japan's resource policy
The officials of the Japanese government and the Japanese companies acknowledge that there is
a vast storage of minerals in Greenland, but are concerned with a financial feasibility if and
when an exploration project is carried out. 50
Japanese FDI
The Ministry of Economy, Trade and Industry (METI) monitors the progress of Japanese FDI
projects abroad. METI uses its para-public institutions as an independent channel of
communication, and the best known is the Japan External Trade Organisation (JETRO). JETRO
promotes trade activities 51 by offering various services for Japanese companies that are
interested in investing abroad. In Japan, JETRO has two headquarters in Tokyo and Osaka, 37
offices in the whole country, a renowned research institute (Institute of Development
Econmics). JETRO holds 55 offices abroad. The services JETRO offers include: consultations on
FDI, providing intelligence on foreign markets, a support on new business development or
business expansion abroad, a support related to intellectual property rights (including subsidies
for fees for investigation the violation of property rights). JETRO offices abroad basically work
as a representative of Japanese businesses abroad.
In addition, Japanese FDI is known to be linked to Japan’s ODA (Official Development Aid).
Research show that Japanese FDI in a particular country is strongly correlated to ODA given to
that country. This is due to a close relationship and mutual effects of cooperation between the
government and businesses. The Japanese ODA projects have been often a package of
investment, development and trade, in order to help develop the economy of the recipient
country. 52
It does not seem there are any particular tax incentives to promote export from the government
to Japanese businesses. Meanwhile, Japanese FDI was 122 billion USD in 2012, close to the
historically highest record in 2008 before the financial crisis, which was 130 billion USD. With
the figure from the end of FY2012, Japan has been the world’s largest creditor consecutively for
the last 22 years (it has the largest net external asset balance) at 3,027 billion USD, the second
Interview with a ministry official, August 2013.
Allan Collins, ‘East Asia and the Pacific Rim: Japan and China’ in Foreign Policy in a Transformed World, edited by Mark
Webber and Michael Smith, pp.287-321, 2002, Harlow: Pearson Education Limited.
52 http://www.rieti.go.jp/jp/publications/dp/07j003.pdf
50
51
Committee for Greenlandic Mineral Resources to the Benefit of Society
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18
and the third creditors being China and Germany. 53 Japan also holds the second highest foreign
exchange reserves after China 54. The increase in the manufacturing, in particular, was possible
due to relatively strong Yen. 55 In recent years, however, FDI increase in the non-manufacturing
industry is seen. All of these suggest that:
-
-
Japanese FDI projects have been on the increase despite reported sluggish economy in Japan due
to strong Yen;
Non-manufacturing FDI, including mining, are on the increase over the last few years;
Japanese FDI projects tend to be profitable and stable in a relatively longer term.
The mining industry
The Japanese mining industry has long faced a difficulty of generating a large amount of profit
over the years, mainly due to closures of domestic mines and a sluggish price of minerals. In
addition, the environment surrounding the minerals market has changed as well:
•
•
•
•
A relatively short life span of mines compared to oil – for instance, mines for copper, zinc, and
lead have a longevity of 34 years, 18 years, and 19 years respectively, whereas oil fields and
natural gas fields have that of 42 years and 50 years on average.
Monopolization by the major resource companies and a rapid increase of Chinese demand (China
consumes 40% of the world’s copper production)
A decrease in ‘blue-chip’ mines – mining sites became more hinterland, deeper, higher and of
lower quality, increasing the development cost
Heightened ‘resource nationalism’ – Indonesia, where Japan imported 60% of its raw nickel
materials and 20% of copper from, forbid exporting of ore, and Peru, where Japan imports 16%
of copper from, increased tax on mining
This has forced the Japanese mining industry to change.
•
•
•
Entering the mining project from the development production phase; this secures profits in a
short term, but it is more expensive and difficult to obtain management rights
Entering the mining project from the exploration phase; this allows the Japanese mining
companies to secure a high profit rate and to obtain management rights, but it is difficult to
secure majority cases and takes a long time to develop until production
Participating in the recycling of mineral resources, including rare-earth materials and rare metals
Against this background, the mining industry asks the Japanese government the following:
1. Strengthen JOGMEC’s support for exploration projects abroad, such as in countries with higher
risks, joint projects with foreign companies combined with Official Development Aid;
2. Strengthen JOGMEC’s support for development and production activities;
3. Modification of a tax system related to exploration projects abroad (an extension of the deduction
system for the capital depletion abroad 56);
4. Consideration for projects in developed countries; the present support system is designed with
projects in developing countries in mind;
5. More aggressive “resource diplomacy”, more support on capacity development, further
assistance on seabed mineral resources development project and stronger support on
geothermal power generation.
http://www.bloomberg.co.jp/news/123-MNG5496K50YI01.html
http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves
55 http://www.murc.jp/thinktank/economy/easy_guide/er_120607.pdf
56 This request was passed in March 2012.
53
54
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For Greenland, the item no.4 would be relevant as Greenland has an advantage of being a
country with lower risks.
Supply and demand for key natural resources
Iron ore
Japan produces a large amount of crude steel. Although companies from so-called BRICs
countries are growing, the Japanese government and Japanese industries consider iron/steel
production a very important industry for the country’s manufacturing industry. 57
Table 1 crude steel productions by country
Source: WSA, JOGMEC, in 1000 tons
Copper
The majority of copper metal (electrolytic copper) comes from domestic copper smelters.
Copper ore used to make copper metal is imported from abroad, such as Chile, Peru and
Indonesia. Different from companies in Europe, the USA or China, the Japanese companies do
not produce secondary copper metal from scrap copper.
Table 2 Japan's cooper import (1000 tons)
Source: JOGMEC http://mric.jogmec.go.jp/public/report/2012-05/1.Cu_20120619.pdf
Conversion rate: Cooper ore 27.9%, Black copper 78%, Scrap copper alloy 80%
57
http://mric.jogmec.go.jp/public/report/2012-05/7.Fe_20120619.pdf
Committee for Greenlandic Mineral Resources to the Benefit of Society
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Gold
There were famous gold mines in Japan in the past (in his travelogue “Book of the Marvels of the
World”, Marco Polo described Japan as rich in silver and gold). At present, there is only one
working gold mine in Japan, which is Hishikari Mine in Kagoshima. Gold ore from Hishikari
contains 45-50g of gold/ton, which is approximately 10 times more of the world’s average.
Hishikari Mine produces 7-9 tons of gold annually. Gold is used for manufacturing
telecommunication equipment and machinery parts, for accessories, and for dental purposes. A
recycling system of gold in Japan is well established as well. Few Japanese companies invest
abroad for gold mining and smelting: The JX Nippon Mining & Metals Corporation to LS Nikko
Copper in South Korea, and the Sumitomo Metal Mining Co., Ltd. to the Pogo Gold Mine in the
US. 58
Table 3 Supply and Demand of Gold in Japan
Source: JOGMEC, in tons
Silver
Ore that contains silver is found in Japan but the percentage in the domestic demand of silver is
very low. Most of the newly produced silver is generated as a side product in the smelting
process of copper, lead, zinc, etc. In 2010, Japan produced 1898 tons of newly produced silver,
314 tons of recycled silver, and imported 2088 tons of silver. The domestic demand for silver in
2010 was 1855 tons and the rest, 2733 tons, was exported. The 30% of the domestic demand is
used for photographic sensitive materials. 59
Uranium
Japan imports 100% of uranium ore demand from abroad. The smelting and conversion of
uranium ore is carried out abroad as well, hence when uranium is imported to Japan it comes as
uranium hexafluoride (UF6), uranium dioxide or fuel assembly. Japan is dependent on external
energy sources (96 % in 2010), the government of Japan placed an important role to the nuclear
power generation and aggressively promoted it until the Great East Japan Earthquake and the
subsequent nuclear accident in March 2011. 60 As of March 2009, Japan maintained
approximately 330,000 tons of uranium, which was worth 49 years of annual demand at the
time of 6700 tons. 61
http://mric.jogmec.go.jp/public/report/2012-05/4.Au_20120619.pdf
http://mric.jogmec.go.jp/public/report/2012-05/5.Ag_20120619.pdf
60 http://www.reuters.com/article/2013/08/21/us-australia-uranium-idUSBRE97K09R20130821
61 http://mric.jogmec.go.jp/public/report/2012-05/41.U_20120619.pdf
58
59
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Zinc
A domestic demand for zinc is on a downward trend, as materials made traditionally with zinc
are gradually replaced with aluminium. The demand also depends on the number of cars
manufactured in Japan. In 2011, a demand for zinc was 491,000 tons while a supply was
661,000 tons, of which 84,000 tons were from abroad. Zinc is imported from countries such as
Australia, Peru, Bolivia, the USA, Mexico and Canada. 62
Lead
Lead mines in Japan produce approximately 250,000-300,000 tons per year at a relatively stable
rate. A domestic demand for lead started to show a downward trend around 2007-2008,
increasing exports of lead in return. A decrease of demand for lead is thought to be due to a
decrease of demand for batteries. 63
Aluminium
Since the cost of electricity required for the electrolytic smelting of aluminium ore is rather high
in Japan, the majority of aluminium ore is imported from abroad. A domestic demand for
aluminium is increasing at a rapid rate, and most of the supply is used for manufacturing
transport machinery such as cars and trains. The demand for aluminium is expected to grow, as
there is a strong demand for lighter vehicles to save energy consumption as well as to reduce
carbon emissions.
62
63
http://mric.jogmec.go.jp/public/report/2012-12/2012120103_Zn.pdf
http://mric.jogmec.go.jp/public/report/2012-12/2012120102_Pb.pdf
Committee for Greenlandic Mineral Resources to the Benefit of Society
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Table 4 Supply and Demand balance of aluminium
Source: JOGMEC, in 1000 tons. http://mric.jogmec.go.jp/public/report/2012-05/6.Al_20120619.pdf
Rare-earth minerals
In 2011, imports of rare-earth minerals to japan decreased dramatically by 80% compared to
2010 due to escalating prices, particularly ferrocerium. The Japanese companies regard the
escalation of prices in recent years is due to a market monopoly and a price control by the
Chinese companies. 15-30% of the total import is exported as cerium compound.
Table 5 Import & Export of rare-earth materials
Source: JOGMEC (http://mric.jogmec.go.jp/public/report/2012-12/2012120122_REs.pdf), in tons. Conversion rate: Cerium
oxide 81.4%, cerium compound 71.1%, Yttirium oxide 79%, Lanthanum oxide 85%, Other compounds 82.5%, Ferrocerium 50%
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
23
The Japanese government has enacted the Act on the Promotion of Effective Utilization of
Resources in 2001. Since then, it became mandatory for municipalities to collect batteries, but it
has been difficult to make the recycling of collected recyclable products commercially feasible
for rare-earth minerals. Since 2012, though, several companies managed to put the recycling to
practical use; for example, Honda started to recycle rare-earth materials in used nickel metalhydride batteries in their factories. 64 It is expected the domestic recycling would proceed, but
the vast majority of rare-earth minerals necessary continue to come from abroad.
Energy Import of Japan
Japan’s primary energy consumption is the 5th largest in the world at 500 million tons per year,
of which 95% is imported from abroad. 65 As of 2009, 42% of Japan’s energy consumption came
from oil, 21% from coal, 19% from LNG, 12% from nuclear, and 3% from water (hydroelectric),
respectively. 66 In 2010, 86.6% of oil came from the Middle East region, importing 214.36 million
kl worth. Coals come mainly from Australia, Indonesia, China and Russia, while LNG comes from
Malaysia, Australia, Indonesia, Qatar, and Russia in descending order. 67 The stabilization of
energy supply is of utmost importance for Japan, and as one of the measures to achieve this goal,
there is a general trend to try to diversify the energy source. Domestically, it means to explore
possible deposits within Japan and its territorial water. Internationally, it means to expand the
transport capability and network and secure a reliable source at a relatively lower price.
Idemitsu Petroleum Norge (IPN), a subsidiary of the Idemitsu group, one of Japan’s largest
energy corporations, has operated on the Norwegian Continental Shelf since 1989. IPN has been
involved in several projects in four oil extraction sites in the region and plans to extract from
Knarr having obtained a license from the Norwegian government. Oil production is expected to
start in 2014.
http://carlifenews.jp/eco/20120417_2011.php
http://eneco.jaero.or.jp/important/japan/japan01.html
66 http://eneco.jaero.or.jp/important/japan/japan02.html
67 http://eneco.jaero.or.jp/important/japan/japan04.html
64
65
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Republic of Korea (ROK, South Korea)
The raw materials market in South Korea
The mineral import is vital for Korea’s economy, because there are limited amount of mineral
resources in South Korea to support its industrial base and the output from the mining industry
has continued to decrease over the years. The following section is based on “US Geological
Survey, 2010 Minerals Yearbook. Lin Shi: The Mineral Industry of the Republic of Korea.”, unless
otherwise stated.
Figure 6 South Korea Mineral Map
Cement
C
Coal
Gold
Zn
Zinc
Copper
Graphite
Iron and steel
Iron ore
Alumina
Bismuth
Pb
W
Ni
Ag
Pet
Talc
Lead
Tungsten
Nickel
Silver
Petroleum refinery products
Talc
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
25
Copper
The figures from 2010 show that the country’s domestic mine production was 9 tons, while it
imported 1.7 million metric tons (worth 4.5 billion USD) from abroad.
Gold
Domestic mine production of was 235 kg while imports of refined gold were 40,683 kg,
equivalent to 1.55 billion USD. The main end-users were producers of coins, dental products,
electronics, jewelry, and material for semiconductors.
Iron and Steel
Domestic mine production of iron ore was 513,000 tons, while imports totalled 56.3 million
metric tons worth 6.65 billion USD. Steel consumption decreased slightly in the construction
industry due to decreased private housing construction, but increased in the automobile and
shipbuilding industries.
Nickel
South Korean steel company called POSCO established production and joint ventures in New
Caledonia, China, Turkey and Vietnam, aiming at securing sufficient supply for metal production.
Tungsten
Woulfe Mining Corporation, a Canadian company, have license to explore what used to hold one
of the world’s largest deposits, the Sangdong tungsten-molybdenum mine. A second mine is also
managed by Woulfe, and here also gold, silver and zinc was recognized.
Zink
A British company, ZincOx Resources has assisted the Korea Recycling Plant to treat electric arc
furnace dust (EAFD) to produce zinc oxides. The EAFD contains about 23% zinc and 28% iron,
the yearly production is set to 46.000 tons and 100.000 tons respectively.
Lithium
POSCO has signed an agreement with the Government (2010) to extract lithium from seawater,
to secure necessary components in batteries for electric cars, mobile phones and other
electronic devices.
Rare-earth minerals
Rare-earth minerals have been detected in a closed iron ore mine in Korea. The country is a
significant consumer of rare earths, and as these minerals are in short supply in Korea, possible
external sources will be explored and highly prioritized. The Public Procurement Service, a
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
26
government agency, plans to build stockpiles of minor metals and rare earth minerals to secure
Korea’s important high-tech production.
The Government owned Korea Resources Corporation (KORES) actively investigates possible
new deposits of rare earth or special metals. Recently Korea turned to Japan to reduce its
dependence of China for these resources. China is said to control 90 % of the global production.
KORES has thus also been in Greenland showing interests in these strategic materials. The same
company, KORES, is involved in securing uranium to the 23 reactors in planning or under
construction, shifting further towards energy supply from nuclear power. At present this
amount to 22% of the country’s energy supply.
A keen observer of the mineral market in South Korea states that: “The South Korean
government will continue to step up efforts to secure mineral resources overseas, especially
given increasing competition for foreign assets from other resource-hungry nations in the
region such as China and India. It is believed that South Korea's overseas resource acquisition
strategy will be successful due to the availability of funds in the sector, well-managed companies
with international expertise and the support of a proactive government.” 68
A major energy importer 69
In 2011, South Korea was the tenth largest energy consumer in the world: the second largest
importer of liquefied natural gas (LNG), the third largest importer of coal, and the fifth largest
importer of crude oil.
Due to the division of the country there are no international oil or natural gas pipelines, and it
relies exclusively on tanker shipments. Although there are no domestic energy resources, South
Korea has some of the largest and most advanced oil refineries in the world. In an effort to
improve the nation's energy security, oil and gas companies are aggressively seeking overseas
exploration and production opportunities.
In the mid-1990s oil consumption reached a peak of 66 % of total energy consumption. In 2011
oil was down to 42 %, and coal 29 %. There has been a steady increase in natural gas and
nuclear energy consumption, and there are plans to increase the nuclear share of total energy
consumption in the near future.
http://www.businesswire.com/news/home/20120120005275/en/Research-Markets-Mining-Industry-South-Korea
The section on energy is based on the country report from U.S. Energy Information Administration, last updated January 17,
2013. www.eia.gov/countries
68
69
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Background paper on Asia
27
As can be seen from the figure above (right), South Korea is highly dependent on the Middle East
for its oil supply, and the region accounted for almost 85 % of Korea's 2011 crude oil imports.
The Korea National Oil Corporation (KNOC) is a state-owned oil company and the largest entity
in the country's upstream sector with 3.2 million barrels of ultra-light crude domestic reserves.
In addition, KNOC, through both acquisitions of overseas companies and investment with major
international and national oil companies, maintains a daily foreign production of 219,000 bbl/d
and 1.28 billion barrels of oil and gas reserves in 2011.
Korea's downstream sector is home to several large international oil companies including SK
Energy, the nation's largest International Oil Company (IOC). SK Energy holds roughly 34 % of
the petroleum product market (excluding LPGs), followed by GS Caltex, S-Oil and Hyundai
Oilbank. These corporations have historically focused on refining, but some have put increasing
emphasis on crude extraction projects in other countries.
The Korea-Oil Producing Nations Exchange (KOPEX) was started in 2006 by the Korea
Petroleum Association (KPA) to maintain good relations with supplier nations and to offer
technology training to producing nations in the downstream sector.
Although new discoveries might improve domestic oil prospects, overseas E&P plays a more
essential role in Korea's oil industry. The Korean government has helped to encourage private
E&P overseas through tax benefits and the extension of credit lines to IOCs by the Korea ExportImport bank, as well as by providing diplomatic aid in overseas negotiations.
As of December 2011, KNOC invested in 215 projects in 24 countries, 57 of which are
production projects (see map below for greater detail).
Committee for Greenlandic Mineral Resources to the Benefit of Society
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Figure 7 KNOC’s global exploration projects
Source: Korea National Oil Corporation
South Korea is not yet present in Arctic energy explorations, however, the activity in the United
Kingdom point to the KNOC-owned Dana Petroleum, which owns 23 % of the shares in Faroe
Petroleum, who has made a bid for explorations in Icelandic Arctic waters.
Korea’s foreign policy and its economic implications
The scope of Korea's foreign policy interest in 1970s and 1980s focused on the United States,
Northeast Asia as well as the Middle East. However, with the end of the Cold War, its foreign
policy interest has generally expanded to Europe and Africa. While trying to mobilize its
diplomatic efforts to resolve the problems related to North Korea, South Korea has recently
come up with a new foreign policy concept called the "Contribution Diplomacy" and "Resource
Diplomacy". For the Contribution Diplomacy, the main agenda is to introduce and promote the
idea of "green growth", by which the international community should work together and
achieve economic growth while protecting the environment. For the Resource Diplomacy, South
Korea wants to secure natural resources for its industrial basis due to poor deposits of natural
resources within its territory, (and it has virtually no oil or gas). This is the background for its
diplomatic activities in Africa, South America and the Middle East. With regards to the Nordic
region its diplomatic focus is on green growth.
The current Park Geun Hye government has listed developing the High North Sea Route and the
Arctic Ocean as the 13th most important government task among its 140 tasks to accomplish for
the next 5 years. On July 25 2013, the Ministry of Ocean and Fisheries in cooperation with the
Ministry of Foreign Affairs and Ministry of Industry and Trade announced the comprehensive
plan for South Korea’s participation in the Artic. According to this plan, South Korea is aiming at
establishing constructive partnership with the Artic states, strengthen the scientific cooperation,
and promote its Artic economic interest with local counterparts. For the implementation of the
plan, the South Korean government is to provide funds to the Artic related scientific research,
contribute in developing an Artic business model that includes viable methods for developing
energy and natural resources in the area, and support the special Artic law in order to promote
29
Committee for Greenlandic Mineral Resources to the Benefit of Society
Background paper on Asia
industrial participation in the Artic. Especially, the plan emphasizes the importance of
cooperating with Greenland as well as Denmark for developing the Artic area.
Ulsan Metropolitan City and Pusan Metropolitan City in the South of the country are the major
port cities in Korea and are keenly interested in the Artic route development, since they expect
that such development will increase cargo-transportation and benefit their city’s revenue.
Overall, one can argue that South Korea’s motives for turning to the Artic are economic, both for
developing the Artic route for its export/import transportation and for securing potential
natural resources.
Based on conversations with a South Korean government official 70 who was informed about the
on-going work in the relevant ministries of formulating a national Arctic Strategy, the following
main goals for such a strategy can be expected:
1. To strengthen the cooperation within the Arctic Council and with relevant organizations
as well as with the other new permanent observer states, China, Japan and India.
2. To promote research focusing on sustainable development, the interest of the local
people, preservation of the maritime eco-system and strengthen the efforts of slowing
the melting of the Arctic ice cap.
3. Support the creation of new industries through bilateral cooperation with coastal Arctic
states.
4. Develop and test vessels for energy and cargo that are designed to use the Northern Sea
Route.
5. Establish cooperation with Arctic states in fishing and fishing industry.
6. Prepare for the given regulations of the Polar development.
7. Investing in and develop necessary base harbours.
8. Reconstruct connection harbours in Korea.
9. Establish cooperation with Arctic states in new techniques for resource utilization,
including offshore plants 71.
The central Korea Polar Research Institute (KOPRI) in Incheon provides information to six
government ministries: Ministry of Education, Science and Technology; Ministry of Land,
Transport and Maritime Affairs; Ministry of Environment; Ministry of Foreign Affairs; and
Ministry of Trade. Beside their other activities, KOPRI organizes an annual conference between
scholars and government officials focusing on experts’ advice on polar research policies 72.
South Korea is the fourth strongest Asian economy, and it might be the one of the most
experienced countries with regards to overseas construction projects. An example of the
capacity of Korean companies operating in the Middle East was the construction of a channel
through the Libyan Desert, which took 20 years and about 10 million workers were engaged in
the project 73. The magnitude of such and similar projects was possible by the business model, or
The official spoke on conditions of anonymity.
These 9 goals have all been mentioned in Korean media covering the Arctic adventure, however not all together as in the
above list. Whether the strategy corresponds with this list, or has been revised, developed, or totally altered remains to be seen.
72 www.kopri.re.kr/english
73 Korea.net/Jessica Seoyoung Choi
70
71
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economic structure, characterized by a close relationship between the state and the private
sector, government and industries.
In “Trends and Determinants of South Korean Outwars Foreign Direct Investment” 74, Jung Min
Kim and Dong Kee Rhe illustrate the scope and importance of the government – business
relationship:
The South Korean government provides four major types of outward FDI measures:
financial support, taxation, overseas investment services, and institutional services such
as administration and information. The Export-Import Bank of Korea provides loans to
investing companies and, more specifically, provides loans of up to 90 percent of the
capital invested abroad to small- and medium-size companies. Tax support includes
avoidance of double taxation. The Korea Export Insurance Corporation, a state-owned
corporation established under the Ministry of Commerce, Industry and Energy, provides
export credit insurance to South Korean exporters against non-payment risks by buyers,
and this same corporation guarantees banks that provide export financing and that issue
bonds for exporters. 75
Meanwhile, some of Korean FDI projects abroad have been criticized for their business conduct.
Recently, the United Nations independent human rights experts have urged POSCO to halt the
construction of a mega-steel plant in Odisha in Eastern India immediately, citing serious human
rights concerns. 76 The project reportedly threatens to displace over 22,000 people in the
Jagatsinghpur District, and disrupt the livelihoods of many thousands more in the surrounding
area. Whether the responsibility lies on POSCO and/or the Indian authorities needs further
investigation.
The Copenhagen Journal of Asian Studies 27 (1), 2009
Ibid. p.132
76 http://www.ohchr.org/FR/NewsEvents/Pages/DisplayNews.aspx?NewsID=13805&LangID=F
74
75
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3. Summary and Implications
Asia is the world's largest and most populous continent, hosting 60% of the world's current
human population with approx. 4.3 billion people. Our focus was on three countries in East Asia,
namely China, Japan, and Republic of Korea (South Korea) because: they have shown an interest
in the development in the Arctic region through applying and being accepted to be Permanent
Observers at the Arctic Council, they produce 75% of Asia region's GDP and they have
established companies that trade oil, gas and minerals.
Relations between the three countries have been long and complex; economic relations are
mutually dependent but politically tumultuous due to historical issues and territorial issues.
All three countries (and companies thereof) have an interest in mining projects of oil, gas
and/or minerals, but with a varying degree.
•
•
Oil and Gas: All three countries are highly dependent on oil from the Middle East (China
50.1 %, Japan 85 %, South Korea 84 %). Japan and South Korea are highly dependent on
foreign energy producing only 4% and 1% domestically. China produces 94% of its
energy from domestic sources, but with its rapid rate of economic development, it has
become a net importer of energy since the 1990s. All three countries are energy-hungry
and always look for ways to diversify their sources.
Minerals: A special attention should be paid to few minerals for their strategic
importance for China, Japan and South Korea. Of particular importance,
o Iron and steel: All three countries consider iron production important, embodying
the famous "iron and blood" speech by Otto von Bismarck as their national
strategy. The world's top five steel-producing companies are from Luxemburg,
Japan, China and South Korea. China's iron and steel industry has struggled for
profit since 2011 due to excessive production, which was possible due to a heavy
protection by the central government.
o Rare-earth minerals (REMs): All three countries are large consumers of REMs, but
in Japan and South Korea, high dependency on REMs from China, which produced
97% the world's rare-earth minerals in 2008, is considered a problem. Though in
South Korea REMs were found in a closed iron ore, both Japan and South Korea
seek to diversify sources. China appears to pursue further market monopoly for
its political value.
o Uranium: Nuclear power generation has been a cheaper way to generate energy
for the three countries. Both China and South Korea seek to increase uranium
stockpile. For Japan, however, it has a relatively large stock of uranium, also
affected by the halt of major nuclear power plants after the nuclear accident in
2011.
With regards to FDI, all three countries are active in increasing the Foreign Direct Investments
(FDI) abroad.
• China – large funding, strong government backing: Outward FDI in the minerals sector
started in 1992 in Peru. The government introduced the 'Going Out' strategy in the
2000s; large state-owned enterprises (SOEs) in the oil and mineral resources sectors
have been the main targets and beneficiaries. Chinese firms are required to gain an
Committee for Greenlandic Mineral Resources to the Benefit of Society
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•
•
approval from the Chinese government when going out. A strong backing from (former)
policy banks.
Japan – low key but effective: FDI began in earnest in the 80s. Japanese FDIs have been
on the increase despite sluggish economy due to strong Yen, making Japan the world's
largest creditor consecutively for 22 years. Non-manufacturing FDI, including mining, is
increasing. The government monitors the Japanese FDI abroad. JOGMEC, a semigovernmental company on oil & minerals development, is part of the KANUMAS project
in Greenland. There are numerous overseas mining projects. JOGMEC offers financial
support for Japanese companies interested in mining projects abroad.
South Korea – strongest government initiative: Also has a large-scale FDIs, but recently a
change in investment pattern, less in North America and more in Europe. Overseas
construction is considered an important industry for the country's economic success. A
very close relation between the government, corporations (Chaebols) and banks,
enabling the country to overcome a politically fragile system coming from the divided
country and the Cold War.
As a last note, it is worth mentioning that, through our research, it appeared three countries
might have different perspectives on or understanding about Greenland’s international status.
In the international order, Denmark remains as an equivalent partner to Japan, China and ROK
as nation states, such as in the international fora like the UN or within international law. The fact
that the Danish Kingdom has a quite extensive Self Rule legal basis, which allows Greenland and
the Faroe Island to act independently on the international arena on matters that are solely on
Greenlandic or Faroe matters, appeared relatively unknown in East Asian countries. Due to the
close relationship between relevant companies and the government in all three countries, this
could be an important aspect affecting the relations Greenland currently is building in East Asia.
It would be desirable for Greenland to take measures to disseminate the information in order to
avoid misunderstanding.
(END)
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APPENDIX
Source: See footnote. 77
77
Gonzalez-Vicente: Mapping Chinese Mining Investment in Latin America: Politics or Market? (2012).
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Source: See footnote 78.
78
Gonzalez-Vicente: Mapping Chinese Mining Investment in Latin America: Politics or Market? (2012).
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Figure 8: China’s investment by geography
Source: See footnote 79.
79
http://www.mmsa.net/GreenSocSymp/10SilverDBS_MMSA_02042010_Final2.pdf
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