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Business
Print Edition> Business
UPDATED: August 1, 2011 NO. 31 AUGUST 4, 2011
Rare Security
China's regulation on rare earth accords with WTO rules
By HU YUE
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TO BE EXPORTED: Pictured is rare earth for export at Lianyungang Port, Jiangsu Province (CFP)

China is now the world's largest rare earth exporter. In 2009, it mined 97 percent of global rare earth minerals, but its reserves made up only around 36 percent of the world's total, down from 43 percent in 1996.

Smuggling is also a problem choking the health of the emerging industry. Wang Caifeng, a former official with the Ministry of Industry and Information Technology and a member of the China Rare Earth Industry Association, estimated that smuggling siphons off about half of the rare earth metals leaving China each year.

Smuggling is on the rise because of increasing returns as government regulations drive up prices of the metals, Wang said.

Smugglers use many tricks to bypass customs checks, including fabricating customs paperwork or marking rare earth as iron oxide or similar materials, said Chen Guiyuan, Deputy Director of the Hohhot Customs in Inner Mongolia Autonomous Region.

While China exhausts its limited resources, many Western countries are hesitant to tap their own reserves.

The United States and Russia, for example, control 13 percent and 19 percent of the world's rare earth reserves, respectively. But both countries have left their own mines intact, relying on cheap imports from China instead.

The EU has also launched a strategy to strengthen its rare earth reserves. Their key was to seek greater access to rare earth metals through free trade agreements with Central and Latin America, as well as enhance technological development and innovative capacities for rare earth recycling and substitution.

Japan imports around 30,000 tons of rare earth from China every year, and keeps at least two thirds of those resources as "rainy day" reserves. Meanwhile, the Japanese Government extended heavy support for companies acquiring rare earth mines overseas. It is estimated the stock of Japan's rare earth is enough for the country to use for the next 20 years.

Consolidation efforts

Efforts to streamline the fragmented industry are already underway.

Since 2003, China has put in place a quota system for rare earth exports and has since 2006 stopped issuing new mining licenses. MOFCOM recently announced rare earth export quotas for 2011 totaled 30,184 tons, almost unchanged from last year's and down nearly 40 percent from 2009.

On May 19, the State Council released Guidelines to Promote Sustainable and Sound Development of the Rare Earth Industry, vowing a string of measures to reorganize the sector.

As traditional mining techniques are destructive to forests and farmland, policymakers pledged to phase out outdated mining methods and set tougher standards for companies in terms of energy efficiency and emission. This move is expected to force a majority of smaller firms out of the market, said Chen Zhanheng, a senior researcher at the Chinese Rare Earth Society.

In addition, the government is determined to push forward mergers and acquisitions within the industry. The short-term goal is to allow the top three producers to control 80 percent of the ion-adsorbed rare earth industry in south China.

For the first time, the country made plans to create a national strategic reserve for rare earth. Without government approval, no company is allowed to explore deposits in these reserved zones.

In a bid to prevent rampant mining, the Ministry of Finance in April 2011 ordered a hike on the resource tax rates of rare earth metals.

"The valuable minerals were sold at amazingly low prices as Chinese supplies flooded international markets" said Lin Donglu, Secretary General of the Chinese Rare Earth Society. "So the most urgent task for China now is to strengthen its pricing power and put the prices back to a reasonable level."

"The key lies in thorough implementation of those measures," he said. "The efforts to control output may be watered down as local governments encourage exploitation as source of fiscal revenues."

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