Taxing Rare Earth

China increased its resource tax rates on rare earth in a bid to consolidate the highly fragmented industry.

The new policy, effective April 1 this year, will increase the tax rates to 60 yuan ($9.2) per ton of light rare earth and 30 yuan ($4.6) for mid-heavy rare earth, from current 0.5-3 yuan ($0.08-$0.46) per ton.

Rare earth contains a class of 17 important chemical elements widely used to manufacture sophisticated products, including flat-screen monitors and electric car batteries.

Sun Fan, a senior analyst with the Goldstate Securities Co. Ltd., said the government needed to better protect the precious minerals and force smaller miners out of the market.

Reckless exploitation is depleting China's rare earth reserves. In 2009, China mined 97 percent of global rare earth minerals, but its reserves made up only around 36 percent of the world's total, against 43 percent in 1996.

Zhang Zhong, General Manager of Inner Mongolia Baotou Steel Rare Earth Hi-tech Co. Ltd., said the tax hike would benefit the industry over the long term, though it will boost the company's production costs by around 720 million yuan ($110.8 million) this year.

Policymakers have also spared no effort to tighten regulation. The Ministry of Environmental Protection on March 1 announced tougher rules on emission limits for producing rare earth. Before that, the Ministry of Finance ordered export tariffs be lifted on some rare earth products for 2011.

Back in the Black

China COSCO Holdings Co. Ltd., a shipping conglomerate, swung back into profit territory in 2010 as energy-related bulk and container shipping volume improved.

The company said it earned 6.76 billion yuan ($1.04 billion) in net profit last year, compared with a net loss of 7.54 billion yuan ($1.16 billion) in 2009. The revenues skyrocketed 44.6 percent year on year to reach 80.58 billion yuan ($12.4 billion).

COSCO Holdings operates the world's largest bulk cargo fleet and is the world's fifth largest container shipping firm.

"The global container shipping market is expected to maintain its equilibrium in 2011," said the company. "The dry bulk businesses will also benefit from buoyant demands due to China's massive investments in railways and affordable homes."

But overcapacity of dry bulk shipping is casting an ominous shadow over the industry as it may affect the shipping rates, said Wei Jiafu, Chairman of COSCO Holdings.

The Baltic Dry Index, a proxy for shippers' costs and profits, has struggled to recover after touching its lowest point since February 2008. Meanwhile, the earthquake and tsunami in Japan, a major importer of commodities including iron ore and coal, are also expected to hit freight activity, said Sun Liping, a senior analyst at Guotai and Junan Securities Co. Ltd.

Luxury Boom

Luxury sales in China are expected to reach $27 billion by 2015, catapulting China past Japan as the world's largest luxury goods market, said a recent report by the global management consulting firm McKinsey & Co. The report was based on an extensive survey of over 1,500 luxury consumers across 17 Chinese cities last Spring.

While many other markets are stagnating or shrinking due to the global recession in 2009, luxury goods saw 16 percent of sales growth in China. Rapid increases in wealth, the wide availability of luxury products, and shifting attitudes toward the display of wealth are driving needs of Chinese consumers for luxuries, said the report.

Last year, over 30 percent of Chinese consumers traded up to more expensive brands, compared to only 6 percent of Japanese consumers. A growing number of consumers are seeking new experiences to round-out their luxury lifestyles, splurging on spas, massages and other wellness activities, it said.

"Most of the world's luxury goods companies are already in China or contemplating increased investment there," said Yuval Atsmon, Partner in McKinsey's Shanghai office.

As the government put a stringent handle over the property market, investors also turned to up-scale jewelries to hedge against inflation, said Michael Ouyang, CEO of the World Luxury Association China Office.

While big markets like Beijing and Shanghai glitter with vitality, smaller ones are catching up quickly, presenting great potential for the industry, he said.