That is the likely outcome for those of them whose geological acumen cannot overcome two major obstacles: they do not have the right alliances and they lack a proper understanding of the enigmatic dynamics of Chinese business culture.

So says one North American mining junior that is an outgrowth of Hong Kong-based investment bank, the Kingsway Group, and therefore benefits from some rather privileged insights.  Indeed, that is the assessment offered by Garry Stein, Managing Director of Merchant Banking for TSX-listed Golden China Resources (TSX.V-AUC).

“The Chinese invented bureaucracy. It can be unbelievably complex and convoluted and full of pitfalls,” he tells SmallCapMedia.com.

He points out that emerging free market economies tend to be fraught with geopolitical risks. China is no exception. And many North American mining companies that have invested heavily in other geologically fertile regions of the southern hemisphere have discovered that this is not a venture for the feint of heart. In particular, there is the challenge of dealing with different levels of government, all of which have different (sometimes competing) political agendas. It all makes for a political and financial quagmire for companies that do not benefit from powerful strategic connections.

Perhaps the prickliest issue facing North American mining juniors in China involves obtaining proof of ownership for properties for which they are committing serious amounts of exploration and development dollars, Stein cautions.

“It’s not a straightforward process. Sometimes companies think they have clear title when they don’t. We’re going to see a lot of Western companies in China that are going to have great difficulties,” he adds.

In such situations, federal, state and even local levels of government may all vie for the right to confer property ownership to eager mining juniors with cheque books at the ready. To further complicate this scenario, these competing administrations may have entirely different criteria for what they require in return. For instance, a state government may be merely satisfied with the payment of corporate taxes. However, the federal government may try to override the jurisdiction of regional governments by laying claim to these tax payments, while also making further demands for production royalties.   

“Chinese courts do not have a history of resolving such disputes over royalties and similar issues. So their decisions can be quite arbitrary and unpredictable,” Stein says.

Having access to “networks of relationships” (known as “guanxi wang” in China) is Golden China’s conduit to accessing the definitive decision makers, he adds. “Otherwise it can be a minefield scrutinizing such deals with the Chinese. Even in negotiations you may discover that you never really know who is in charge. That’s the challenge that Western companies face.”

However, being very practical and pragmatic by nature, the Chinese are not inclined to make life unnecessarily difficult for Western mining juniors. Yet, communist China’s rapid transition to a free market economy is still in its infancy and still makes for a very unfamiliar and enigmatic business environment for foreign investors, Stein points out. 

“Essentially, there are significant differences in business practices over there, as well as big cultural differences.”

There are also many misconceptions about doing business in China that can create the impression that foreign investors can get almost anything achieved if they have deep enough pockets. Yet, because of China’s reliance on “guanxi wang,” this really is not the case. However, business dealings in China are becoming less enigmatic. For instance, China’s recently became a member of the World Trade Organization and as a result has been moving to liberalize mining legislation and business practices.

“China still has some way to go to ensure the uniform application of this this legislation. snuin its efforts to liberalize mining legislation and practices to create a level playing field for all in the mining industry,” Stein suggests.

All of these various potential headaches can become significantly magnified when considering that publicly traded mining juniors also need to frame their business dealings in a manner that meets North American regulatory requirements, Stein adds. Investors need to be assured that contractual agreements with Chinese partners are well-structured and consistent with both Chinese and international laws.

Another key issue is the fact that over 60 years of communism has not made the Chinese as naive in free market business matters as some opportunistic mining entrepreneurs might think. The Chinese have a sophisticated understanding of the mining business but are still somewhat behind the curve in the implementation of modern mining technologies.

“That is why the Chinese are seeking out North American partners for the development of lower grade bulk tonnage deposits and more metallurgically complex deposits,” Stein adds.

Regardless, China is still offering opportunities the likes of which these days can typically only be found among a tiny handful of the world’s most far-flung mining outposts.

“That’s why we’re in China. Our mission is clear. We’re looking for elephant deposits – either by ourselves or in partnership with others. Either way, we’re confident that our investors have a great opportunity to participate in China’s precious metals industry,” Stein concludes.