Promoting Foreign Investment
In the past few years the Central government has taken an aggressive approach to developing the nation's mining industry which included the following measures: implementation of a new mineral law under the Ministry of Land & Resources; privatization of the mining sector; deregulation of the mining sector, particularly the gold industry and streamlining of permitting and approval processes.

China encourages foreign investors to participate in its mining industry and contribute to the industry's development. Several positive changes have been announced to facilitate foreign investment including the granting of irrevocable exclusive mining rights to foreign entities; approval for the transfer of mining rights; regulations that grant equal access to geological data for foreign mining companies; and, relaxation of rules on repatriation of capital profits.

Just recently, the Chinese government established a National Development and Reform Commission which has overall responsibility for gold. It is now drafting the influential Eleventh Five Year Plan which will chart official policy and further reforms for 2006-2010. The Ministry of Land and Resources retains responsibility for mining China's natural resources and recognizes that real progress to attract foreign investment must be made at the administrative level.

Small Mines Encouraged to Adopt "Commercial" Outlook
Internally, China is also encouraging its gold mining industry to become more "commercial" in outlook, reflecting the capitalist principles that are beginning to take hold within the country. Although the pace of reform has been slow at times, the nation's gold mining industry currently has more than 1,200 producers, most of them relatively small operations that are typical of countries whose minerals industry is not highly developed. These small operations often represent significant exploration targets given the proven existence of gold on site. In most cases, however, the operators do not have the technical expertise and/or the financial capability to exploit the true geological potential on the property.

Small scale production, backward mining practices, poor mineral recovery technology along with poor management techniques and low production efficiency keep most Chinese producers from being competitive in a global context. Since 1976, the end of the Cultural Revolution, China's gold output has doubled every five to ten years from about 20 tonnes per year to around 200 tonnes per year - about the same annual output as Newmont Mining. However, work by the Chinese Geological and Mineral Survey Bureau, estimates the gold resources of China's ten major provinces to be over 11,000 tonnes and the nation's prospective gold resources at around 15,000 tonnes with 75% of gold located in 1,000 small deposits (27% of proven reserves). Only nine deposits with proven resources of over 50 tonnes exist in China, with the Jiaojia gold mine in Shandong Province having a proven reserve of over 130 tonnes. However, with new investment, in 2003, several new discoveries ranging from 100-200 tonnes were reportedly made at Lannigou in Guizhou province.

Shanghai Gold Exchange
The opening of the Shanghai gold exchange in October 2002 signalled the end of 50-plus years of government monopoly over the gold market. As a result, Shanghai is poised to become a major international gold trading center, with 108 members including 13 commercial banks, 24 gold miners, 61 consumer units, eight refineries and two mints. Only members can trade in the exchange where market prices fluctuate with international price changes.

In early 2003, China allowed its citizens to buy gold bullion for the first time since the Communist Party took power in 1949. Since then, gold jewellery manufacturers, wholesalers and retailers no longer need to obtain a special license from the central bank. As a result, overseas bullion dealers and jewellery manufacturers can open or expand their business in China. The World Gold Council has projected that deregulation could double or triple gold demand in China over the next five years, meaning the country could rival India as the world's largest gold consumer.

China is growing at an extraordinary pace, with GNP growth running in excess of 9% while government statistics show muted inflation at 2-3%. Rising Chinese purchasing power has strengthened demand for gold jewellery which has positive long term implications for the global gold mining industry.

"The establishment of the Shanghai Gold Exchange marked the complete withdrawal of the Chinese government from the physical resources allocation area - and the beginning of market-oriented allocation and regulation of gold resources," said Mr. Shen Xiangrong, Chairman of the Shanghai Gold Exchange and Vice-Chairman of the China Gold Association.