Measures are urgently needed to address the problems in China's ailing mining industry,a State Economic and Trade Commission research report said.

The mining industry is the primary industry in virtually all market economy countries.

However, although providing 80 per cent and 93 per cent of raw materials and energy, the industry is still designated as a secondary industry in China, which causes many of its problems, the report pointed out.

Currently, of the estimated 390 cities that used to thrive on the mining industry, 47 have run into difficulties as their mineral resources are depleted.

Miners, numbering 21 million nationwide, have become the low-income group in China.

For example, the average annual income of a coal miner was lower than 9,371 yuan (US$1,133) - the country's average for urban areas in 2000.

The mining industry has never before encountered such a snag.

Rather than being dubbed a sunset industry, the mining sector is a strategic industry that should be strengthened in China as the demand for minerals and energy is expected to increase as the nation strives to build a well-off society, the report said.

According to statistics, there were 153,723 mining enterprises in China by the end of 2001, among which 500 were considered to be large and 1,254 medium-sized.

Such low industry concentration has taken a heavy toll on the mining industry's international competitive edge, the report said.

To beef up the sector's competitive edge, large mining enterprises should be reformed into listed holding companies by attracting foreign and private investment, while the medium and small-sized enterprises could be reorganized into larger ones through various ways, the report suggested.

As an industry long accustomed to a planned economy, the mining sector is already weighed down by its historical and social burdens, similar to the situation facing State-owned enterprises.

Adding more woes, the tax regime introduced in 1994 landed another blow to the industry as expenses increased significantly.

For example, the value-added tax on mining firms has been raised by up to 6 percentage points.

And new tariffs have also been imposed on mining firms such as resources compensation tax.

The tax hikes have further crippled the mining industry, the report noted.

Given China's mineral products are now being allocated in an open market after its World Trade Organization entry, a tax regime concerning the mining industry that is in line with international practices is desperately needed, the report urged.

The current value-added tax rate could be switched back to the level prior to the 1994 reform and the resources tax and resources compensation tax could be merged, the report recommended, adding other options such as a tax rebate could also be attempted to reduce mining firms' financial burdens.

As is the case with other State-owned enterprises, mining firms also assumed numerous social functions such as setting up their own schools, hospitals and even public security units.

A survey polling 14 coal mining firms in 2001 found the cost of running such social functions amounted to 1.33 billion yuan (US$160 million) that year, accounting for 10.42 per cent of their total revenue.

Though efforts are now being mounted to divest the mining enterprises of their affiliated social functions to local governments, the push is not always successful.

Some enterprises have even found their burden increased.

So in order to complete the separation of social functions, a workable solution is crucial, the report stressed.

When the schools and public security units are transferred to local government, they should be financed by local budgets.

And enterprises could also turn their affiliated social facilities into economic entities that are responsible for their own business operations, the report added.

In recent years, the number of newly-found mineral resources has plummeting. Reserve resources in China are considerably inadequate.

At present, 440 mineral ores in China are nearing depletion and 66 per cent of the country's main non-ferrous ores are coming to an end.

Up until now, 83 ores have already run out or are scheduled to become extinct.

By the end of 2010, 355 more non-ferrous ores are expected to follow, accounting for 46 per cent of the country's non-ferrous ores and 35 per cent of total production capacity.

The pace of closure for mining enterprises due to the exhaustion of minerals is set to accelerate in the coming 10 years, so it is a pressing task now to draw up proper measures in preparation, the report purposed.

For instance, relevant laws and regulations concerning the closure of resource-depleted mining enterprises should be formulated as soon as possible.

And a certain percentage of money could be taken out of mining enterprises' mineral sales revenue to set up a special fund to help relocate the laid-off workers when the firms close, the report recommended.

While the existing ore is being exhausted, the reserve ore is not being backed up by new discoveries, the report lamented.

This problem is mainly caused by insufficient prospecting, which is the result of meager investment in prospecting, the report said.

So, introducing foreign investment into prospecting by improving the country's investment climate should be put on the government's agenda.

In addition, the government should encourage mining companies to prospect, trying to form a stable resource supply base, the report said.