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Build resource reserves

(China Daily)
Updated: 2009-03-09 07:49

In early February, I predicted that a global inflationary trend would come on the heels of the subprime crisis, and suggested that investors put their money into natural resources. China's decision-makers seemed to have done just that with a national plan to stock up on national reserves of oil, coal products, and other important minerals such as copper, chrome, manganese and tungsten. The plan (2008-15) was promulgated on Jan 7.

Without the participation of the private sector, the government will only achieve limited success in this effort. Private investment and reserves are an important part of the country's overall resources.

If the Chinese government or a State-owned enterprise were to purchase resources in a foreign country right now, it may cause alarm and disrupt the deal. If private businesses were involved, the process would be much smoother.

However, China not only does not encourage private sector investment in resources, it has set a number of obstacles before them. For instance, China does not place a tariff on the export of gold and silver, but the import of gold and silver requires a permit from the People's Bank of China, plus a 17-percent valued-added tax. A 50-percent tariff is placed on semi-finished gold.

This tariff policy has severely undermined the private sector's enthusiasm for investing in such resources.

Many countries are increasing their money supply to tackle the ongoing global economic crisis, and it has distorted the current international credit system.

In January, I had forecast that the price of gold would increase after Barack Obama became president of the United States, and gold would be a promising investment alternative. China's current policies, however, have discouraged private businesses from investing in gold.

If the government plays solo, it will have far to go to meet the national target for strategic reserves of resources. The government should eliminate all the restrictions on the private sector and allow it to help secure our stockpile of natural resources.

Shi Hanbing is a commentator with Shanghai Securities News

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