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Mining rights auctions are now widely promoted in China to "realize the value of mines, improve efficiency and cut accidents."

In north China's Shanxi Province, the latest public bidding for the excavation rights to 10 mines raised 14.15 million yuan (US$1.77 million). Held late last month, it marked the province's second round of public bidding for mining rights. Similar auctions have taken place in a number of other provinces in recent years.

Formerly a planned economy, China did not allow the transfer of prospecting and excavation rights to mines, which are state-owned. In 1996, the mineral resource law was revised to legalize such transfers.

The government can surely pocket more money as the value of the mines is realized. Without such a bidding mechanism, many of those mines would either lie idle or be illegally tapped, with the government receiving little compensation.

Bidding, however, is not a perfect solution.

Without specific and detailed rules strictly governing such rights transfers, it is too early to conclude that this process can actually maximize the value of the State's mineral resources, improve efficiency and cut accidents.

Admittedly, the central government has issued regulations governing such transfers. But previous experience shows that local interests can sometimes circumvent these rules, with corruption often rearing its ugly head.

The key to safeguarding these rules is to make them more applicable and make the bidding process more transparent.

Another issue arising from the bidding procedure is how to cut accidents.

Such rights transfers appear to clearly establish who is actually investing in the mines and make the investors more careful in managing the mines so that they can ensure their long-term interests.

But the real cause of the large number of deadly mining accidents is the lack of effective regulation. Due to local protectionism, some local governments just turn a blind eye to local mine operators' failure to invest adequately in safety.

Safety will not be ensured simply by a prospecting and excavation rights reform. Local regulators must be far stricter in implementing safety standards.

If regulation is loose, the successful bidders may also ignore safety standards and investment, since they have paid a lot of money to secure the bid.

They are more likely to give priority to maximizing their production capacities instead of increasing input in safety equipment.

(China Daily July 20, 2006)