Their own worst enemy

Zijin Mining’s environmental disasters have overshadowed the firm’s meteoric rise. Li Taige wonders when polluting companies – and the officials who protect them – will realise the value of proper supervision.

In its previous incarnation, back in the 1990s, Zijin Mining – now one of China’s most loathed firms – was a small and obscure state-owned enterprise (SOE). Today, the firm, whose polluting ways and local government connections have been the subject of a flurry of recent media reports, is China’s largest producer of gold and second largest of copper. Its mining operations extend overseas, with a presence in countries including Russia, Canada, Peru, South Africa and Vietnam. And it is listed in the 2009 “Financial Times Global 500” – a ranking of the world’s biggest companies.

The capital for this transformation came from the Zijin gold and copper mines on the mountain from which the company takes its name. Here, in the Fujian county of Shanghang, south-east China, gold deposits are found on the upper slopes and copper on the lower ones. This is where Zijin has its headquarters. In the 1980s, company chairman Chen Jinghe worked here as part of a geological survey team prospecting for reserves. As Chen and his colleagues reported gold reserves of only 5.45 tonnes, the mining rights were handed to the county. 

In 1992, Chen Jinghe was headhunted by the county government to manage extraction of gold and copper from the mountain. Over time, the reserves reported to the outside world increased to 100 tonnes and it became China’s single most productive gold mine. Writing about this increase in Metal Mining magazine in 2000, Chen said that “Application of economic geology theory led to a fundamental change in understanding of the deposits.” Whatever the reason, the Zijin site grew from a minor prospect into, well, a goldmine.

Later, Zijin become a private company, with Minxi Xinhang Industries holding a 28.96% stake on behalf of the Shanghang county government – on paper the largest shareholder. However, two private entrepreneurs from Fujian, Chen Fashu and He Xiping, had actual control and, in combination with Chen Jinghe, held a larger stake than Shanghang government. In 2003, the company listed on the Hong Kong stock exchange, and then on the Shanghai stock exchange in 2008.

The quick growth of the firm – and in particular its soaring share price following the Shanghai flotation – made a fortune for these three shareholders and others; some local officials held shares in the company, or simply did well out of working for Zijin after leaving their government posts. Clearly, Zijin’s success has enabled a certain group of people to fill their pockets and if that has happened legally then all well and good – except for the fact that Zijin’s development has been accompanied by environmental failings. While a few have benefitted from the company’s growth, the public, including the majority of Shanghang residents, have had to pay the price in pollution terms.

In 1997, Chen Jinghe blasted the mountain top and started opencast mining, which is both easier and cheaper than mining underground – but more harmful to the environment. On August 2 this year, Zijin’s vice president, Liu Rongchun, said in a media interview that the decision to proceed with the blast had been thoroughly examined before going ahead and approval obtained from the relevant authorities.

Clearly, that is no difficult task when you are so close to local officials. As is the case with many SOEs that have a local government background or links with officials, Zijin Mining was able to take environmental risks due to its support base. Subsequent and frequent pollution incidents were treated lightly thanks to local government protection. Or, to put it another way, the financial costs of pollution were low. 

On July 3, a leak from a wastewater pond at Zijin Copper Mine sent about 9,100 cubic metres of acidic, copper-laden water into the Ting River, killing thousands of fish. But it was only nine days later that either Zijin Mining or the county government – the protector of public interests and a major shareholder in the listed firm – made the accident public. The previous month, my magazine, Century Weekly, had revealed that another incident of pollution from Zijin’s tailings storage had triggered a notice to local schools: “Please don’t eat fish.”

In this context, there was little hope that the local environmental authorities would do anything about Zijin’s string of pollution incidents. Apparently, in the three months from April 11 to July 17, the automated monitoring station placed below the mines by Shanghang Environmental Protection Bureau suffered “equipment damage” and failed to provide any data. The environmental authorities are part of local government, merely guided by the Ministry of Environmental Protection (MEP) or their provincial superiors.

As soon as the MEP loses the cooperation of its local branches, it becomes deaf and blind. And even when its limited sample testing finds breaches, it lacks ways to stop them. Zijin received stern warnings from the Ministry both before and after it listed on the stock market, but it seemed to take no notice at all. There is no doubt that China’s environmental laws need to be revised; the MEP should be given greater powers and the local environmental authorities as much independence as possible from local government. 

Under intense media scrutiny, Zijin’s pollution record has finally attracted attention, and the State Council, China’s highest administrative authority, has dispatched a working group to investigate and supervise the firm. But some say that the media were only able to turn on Zijin because it was controlled by a county government. If it had enjoyed more powerful backing, the media may not have been able to subject it to the same level of examination.

Zijin’s problems are not limited to Shanghang county. Its sites in Guizhou, south China, and Hebei, north China, have also seen major pollution incidents. And the company’s record overseas is no better. Writing for chinadialogue, Adina Matisoff, sustainable finance analyst at Friends of the Earth, pointed out that Zijin has also been punished for breaches of environmental law in Peru.

Today, Zijin is paying the price for its polluting activities. The Zijin Copper Mine has been shut down for rectification, while production at the company’s gold mine is to be cut due to environmental considerations. The firm will also have to invest hundreds of millions of yuan in water-treatment equipment and provide a new source of drinking water for the people of Shanghang. If it is also instructed to pay compensation for the losses suffered by fisherman due to the wastewater leak and the damage done to the environment, the figures involved will be considerable. On July 27, Zijin’s vice president and former head of the Zijin Copper Mine, Chen Jiahong, was detained by police on account of his involvement in a major pollution incident. It is not yet known if any more senior staff will fall.

In the end, strict environmental oversight is not necessarily a bad thing for a company. If Zijin had been prevented from building its wastewater pond on the banks of the Ting River and the necessary management structures and technology had been put in place, the accident could have been avoided and both the firm and its shareholders would not have suffered huge losses. If only polluting companies, and those local governments that aid them, would take this on board.

Li Taige is a Beijing-based journalist. He obtained a masters degree in engineering from Sichuan University in 1997, and studied as a Knight Science Journalism Fellow at the Massachusetts Institute of Technology (MIT) from 2003-2004.

Homepage image from Hudong.com shows Zijin’s second biggest shareholder, Chen Fashu (right), with New Huadu Industrial Group chief executive Tang Jun.