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Business
Print Edition> Business
UPDATED: August 18, 2014 NO. 34 AUGUST 21, 2014
A Rare Mettle
Hit with an unfavorable WTO ruling, China must dig deep in order to rescue its beleaguered rare earth industry
By Zhou Xiaoyan
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According to China Customs statistics, in 2013 China's rare earth exports volume rose by 38.3 percent year on year, but its exports value fell by 37 percent compared with that in 2012. Currently, the average price of rare earths has fallen back to the level of 2010, said Chen Zhanheng, Deputy Secretary General of the Association of China Rare Earth Industry.

"Illegal mining, production and selling of rare earth materials have already taken the shape of a black interest chain," said Jia Yinsong, who is in charge of the MIIT's Rare Earth Office, noting that high profits from illegal mining have also led to collusion between local government officials and illegal miners.

Extracting solutions

After the export quotas and export tariffs are scrapped, environmental tax should be levied during the exploitation process to promote sound and sustainable development of the industry, said Bai Ming, a research fellow with the Chinese Academy of International Trade and Economic Cooperation.

Chen Weidong, a professor in law at the Beijing-based University of International Business and Economics, said once the export tariffs are removed by the Chinese Government, a resource tax is likely to be levied on the valuable resource, which is in line with WTO regulations and has been adopted by other countries that are rich in rare earth reserves.

Ye Bo, an assistant professor with Shanghai University of International Business and Economics, said regulation on the rare earth industry should be expanded to the production link of the supply chain. "The Government should increase regulation on rights pertaining to the mining of natural resources, and the production and sales of those resources," Ye said. "In addition, the mineral resource tax should be levied to protect the environment."

Meanwhile, smuggling, illegal mining and black market dealing should be strictly prohibited, Bai said.

The Chinese Government has carried out major crackdowns on illegal mining, black market dealing and smuggling activities in the rare earth industry in a move to further the industry's healthy development.

In Ganzhou, east China's Jiangxi province—an area rich in light rare earth resources, more than 40 officials were probed for their involvement in illegal rare earth mining and processing last year.

In a three-month campaign held from August last year, 126 rare earth production firms were ordered to suspend operations and another 161 had their production licenses revoked. Inspectors also seized 19,000 tons of illegally mined rare earth materials during the campaign.

The MIIT, together with other government departments, plans to carry out another round of crackdowns on illegal mining, black market dealing and smuggling starting from August 15.

Industrial integration is the key to the healthy development of the sector. Amid a government-led push to consolidate the industry, authorities also approved six rare earth blocs in early August.

After the currently fragmented industry has been integrated, industrial behemoths will have the requisite common sense and expertise to control productivity and prices, even without government restriction and supervision, analysts say.

In all, six rare earth companies including Baogang Group, China Minmetals, Chinalco, Guangdong Rare Earth Corp., Ganzhou Rare Earth Group and Xiamen Tungsten have been encouraged to take the lead in integrating regional resources to improve industrial concentration.

The government has accelerated consolidation in the rare earth industry through giving its approval for three major producers to become conglomerates by year-end to fortify available resources, combat smuggling and alleviate overcapacity. Three more such companies will be given approval during the second half of the year.

Bai said the establishment of rare earth conglomerates can improve the allocation of China's rare earth resources. "For example, it should be established which resources should be tapped first and which later. In this way, price decline following overexploitation and oversupply can be avoided. Also, an orderly exploitation of rare earths can be achieved to avoid over competition."

"The proposed conglomerates should focus on research and development so as to achieve higher-end rare earth production," suggested Bai.

Email us at: zhouxiaoyan@bjreview.com

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