China to use foreign exchange to develop energy and mineral resources

By Elaine Kurtenbach
Associated Press
Wednesday, December 27, 2006

http://news.yahoo.com/s/ap/20061227/ap_on_re_as/china_strategic_resources_2

China will take advantage of its massive foreign exchange reserves to expand its stock of strategic resources such as oil and minerals, state media reported Wednesday, citing a top economic official.

Vice Prime Minister Zeng Peiyan told leaders of the national legislature that the government plans to step up exploration for key resources such as oil, gas, and coal. It also intends to use the opportunity afforded by the country's more than $1 trillion in foreign reserves to improve strategic resource bases, the state-run newspaper China Business News and other reports said.

The reports did not provide details on exactly how the government would use funds backed by the foreign exchange reserves, which cannot directly be used for such purposes because they belong to the central bank.

Zeng, who is a top economic planner, decried China's relatively weak resource base compared with its huge population of 1.3 billion people.

China has 12 percent of the world's known mineral reserves, ranking third after the United States and Russia, he said. But huge demand means that supply increasingly falls far short of consumption in many areas.

The trend worries China's communist leaders who have a long viewed self-sufficiency as a strategic priority. Newspapers also carried front-page reports Wednesday citing President Hu Jintao emphasizing the need to conserve scarce resources while protecting the environment.

Zeng said the country would speed up the development of deep-sea oil and gas and newly discovered onshore fields to increase oil and gas output.

"By 2010 we hope to form a number of important strategic mineral resources bases in the west and make breakthroughs in exploration work in the eastern and central parts of the country," the official Xinhua News Agency quoted Zeng as saying.

He reported the discovery of eight major oil fields with proven reserves of more than 700 million barrels and of five gas fields, with an estimated reserve of more than 3.53 trillion cubic feet.

Zeng noted that China's output of coal and iron ore had doubled in the past five years. In 2006 alone the government spent 2 billion yuan ($256 million) on mineral exploration and plans to spend more in the future, the reports said.

China is building 13 big coal production bases that are expected to produce about 100 billion tons of coal a year, he said.

Meanwhile, Zeng said the government planned to designate an unspecified number of large companies to be built into internationally competitive conglomerates.

"We'll support large mineral businesses in coalitions, and acquisitions and mergers, and the reorganization of small and medium-sized counterparts," Zeng was quoted as saying.

China has tens of thousands of mining companies, most of them small operations with dire safety records. The government has been vowing for years to consolidate the industry and shut down smaller players.

China's central bank has downplayed proposals for using the country's foreign reserves, which reportedly have surpassed $1 trillion, to finance purchases of oil and other resources. However, some economists have argued in favor of this approach, saying the government could issue long-term bonds to the central bank to gain access to the funds.

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