Gold Mining in China

Posted on February 15, 2021

Mining is not new to China, but precious metal mining is. With the demand for gold steadily rising, China's production is also increasing. How does China's production affect investing in this precious metal? Learn more about how China impacts global gold production and international prices.

What Is the History of Mining in China?

China has a rich history of metallurgy mining dating back thousands of years. Copper and bronze mining began toward the end of 3000 B.C., with copper tools gaining popularity by 2000 B.C. At around 300 B.C., China became the first nation to produce cast iron. By 200 B.C., the introduction of chromium oxide led to the development of rust-resistant steel.

In 1971, a mine in Jingaoshan revealed rich platinum, palladium and gold deposits, spurring China to focus heavily on rare-metal mining.

What Are the Current Attitudes Toward Mining in China?

There are mixed feelings about China's gold production. China fills the huge gap in demand that no other single country can fill. However, China's mining methods and effect on world prices are negatively impacting competing international mines.

Economical

Chinese gold mines are struggling to keep up with demand, with exports steadily increasing the past few years [1]. China is a major gold supplier for manufacturers that use the metal for electronics and medical equipment. The demand for gold will likely increase with the need for electronics and medical equipment. China produces most of the world's gold, meaning it also controls the global price, driving it down and making it harder for mining operations in other countries to compete.

International

Since China is the leader in gold consumption, it is looking to expand its capacity for mining gold by finding new local resources [2]. The country's industrial policy prioritizes rare-metal mining and refining, giving it a competitive edge over countries that don't have similar policies [8].

Environmental

A major component contributing to the high price of gold is the cost of extracting it from ore. Mining also has a high cost due to the damage it causes to the environment.

• Landscape: Open-pit mines destroy vast hectares of land during the excavation process. Without proper reclamation, the land is completely useless once mining is complete.
• Chemicals:  Smelters use toxic chemicals, such as mercury and cyanide, to dissolve the fine powder gold out from millions of tons of rock. Refiners bind mercury to gold, then burn the mercury off, polluting the air. Cyanide decomposes, but it does sometimes spill into local water sources during the production process.

Who Are the Biggest Competitors of China in Mining?

Since 2007, China has been the biggest producer of gold in the world, mining 383 tons of gold in 2019. This accounted for 11% of the world's production [4]. However, several countries are close behind China in gold production:

• Russian: With a staggering 329 tons, Russia was the second-largest producer of gold.
• Australia: Close behind Russia was Australia with 325 tons. Australia's mines are running out of gold, and production looks like it will continue to dwindle unless the country discovers new mines [5].
• United States: The U.S. is in a distant fourth place with 200 tons, though its production will also likely decrease.
• Canada: In 2018 and 2019, Canada mined less gold than the U.S. However, except for China, Canada is one of the few countries that's increasing its production. Canada, like China, continues to discover more gold deposits and aims to mine over 240 tons of gold a year by 2023 [6].

Who Is Projected to Win?

Countries that use the most gold are shifting the balance of who mines the most gold. The capacity to discover deposits of this limited resource also impacts the gold-production race.

Australia

Australia's gold mining industry is over 150 years old and was one of the earliest gold rush countries ” and now it is taking its toll. Gold mining in Australia is still one of the biggest operations in the world, but nothing lasts forever, and current resources are becoming more costly to refine.

Canada

Canada's gold rush began 50 years after Australia's. Many Canadian gold resources were left alone, allowing for a new wave of mine discovery. Experts seem to agree that Canada has the natural resources to increase gold output by up to 30% by 2024. With Australia's decreasing production, Canada could be the second-biggest gold producer in five years [6].

China and Russia

China and Russia both still have many potential gold mines bursting with potential. These are the closest competing producers, and no other country can get anywhere near these levels.

The expectation is that by 2029, the gold production of Russia will reach 484 tons per year. However, there is no cause to assume that gold mining in China will slow. It seems that Russia will be in a tight race over the next decade with Chinese gold mining [7].

China has been a leader in the gold industry for several years. With its untapped potential and aggressive industrial policy, China will likely continue to be a presence in the years to come. However, a few other countries, like Canada and Russia, are close competitors that may out-produce China over time.

Article Sources:

1. Trading Economics. Imports of base metal and products,  https://tradingeconomics.com/china/exports.  Accessed September 22, 2020.

2. Reuters. 'China gold consumption plunges in first half, but shows signs of recovery in second quarter,' https://www.reuters.com/article/us-china-gold-idUSKCN24T0BL. Accessed September 26, 2020.

3. China Dialogue.   China needs to get to grips with its gold mining pollution crisis, https://chinadialogue.net/en/pollution/6996-china-needs-to-get-to-grips-with-its-gold-mining-pollution-crisis/#:~:text=The%20environmental%20challenge%20of%20course,prominent%20from%20a%20pollutant%20perspective. Accessed September 22, 2020.

4.  Gold. China's gold mining industry: a story of growth,  https://www.gold.org/goldhub/research/gold-investor/gold-investor-october-2018/chinas-gold-mining-industry-a-story-of-growth. Accessed September 22, 2020.

5. ABC News Australia. Research dismissed by Perth Mint, https://www.abc.net.au/news/2019-04-30/production-from-australian-gold-miners-tipped-to-fall/11056240. Accessed September 22, 2020.

6. Mining Technology.  Canada's gold production to reach 7.6Moz by 2023,  https://www.mining-technology.com/comment/canadas-gold-production/. Accessed September 22, 2020.

7. Mining. Russia's gold mine production growth to overtake China's by 2029 “ report, https://www.mining.com/russias-gold-mine-production-growth-to-overtake-chinas-by-2029-report/. Accessed September 22, 2020.

8. The National Bureau of Asian Research. 'China's Control of Rare Earth Metals,' https://www.nbr.org/publication/chinas-control-of-rare-earth-metals/. Accessed September 28, 2020.