- Severe damage to the ecological environment. Outdated production processes and techniques in the mining, dressing, smelting and separating of rare earth ores have severely damaged surface vegetation, caused soil erosion, pollution and acidification, and reduced or even eliminated food crop output. In the past, the outmoded tank leaching and heap leaching techniques were employed at ion-absorption middle and heavy rare earth mines, creating 2,000 tons of tailings for the production of every ton of REO (rare earth oxide). Although more advanced in-situ leaching method has been widely adopted, large quantities of ammonium nitrogen, heavy metal and other pollutants are being produced, resulting in the destruction of vegetation and severe pollution of surface water, ground water and farmland. Light rare earth mines usually contain many associated metals, and large quantities of toxic and hazardous gases, waste water with high concentration of ammonium nitrogen and radioactive residues are generated during the processes of smelting and separating. In some places, the excessive rare earth mining has resulted in landslides, clogged rivers, environmental pollution emergencies and even major accidents and disasters, causing great damage to people's safety and health and the ecological environment. At the same time, the restoration and improvement of the environment has also heavily burdened some rare earth production areas.

- Irrational industrial structure. China's rare earth industry has huge overcapacity in smelting and separating. On the other hand, the research and development of rare earth materials and components is lagging behind, its level of rare earth new materials development and end-product application technologies is significantly lower than the advanced international level, and the IPR ownership, and the production and processing technologies of new-type rare earth materials and components are relatively small in number. As a result, low-end products overflow while high-end products are in short supply. China's rare earth industry, relatively small in scale, features a low concentration rate with numerous businesses, but lacks large enterprises with core competitiveness. Self-discipline in the industry is also weak, and vicious competition exists to some extent.

- Severe divergence between price and value. Over quite a long time, the price of rare earth products has remained low and failed to reflect their value, the scarcity of the resources has not been appropriately represented, and the damage to the ecological environment has not been properly compensated for. Since the second half of 2010, despite the gradual rise in the price of rare earth products, the rise has been much lower than that in the price of other raw materials like gold, copper and iron ore. From 2000 to 2010, the price of rare earth products rose by 2.5-fold, while that of gold, copper and iron ore increased by 4.4-, 4.1- and 4.8-fold during the same period, respectively.

- Grave smuggling. Due to multiple factors, including domestic and international demand, the smuggling of rare earth products to overseas markets continues to be a problem in spite of the efforts made by China's customs listing it as a key criminal act to crack down on. From 2006 to 2008, the volumes of rare earth products imported from China, according to statistics collected by foreign customs, were 35 percent, 59 percent and 36 percent higher than the volumes exported, as statistics released by the Chinese customs show, and the figure from foreign customs is 1.2-fold over the Chinese figure in 2011.

To address the salient problems in the development of China's rare earth industry, the Chinese Government has tightened supervision over it. In May 2011, the State Council issued Guidelines on Promoting the Sustainable and Healthy Development of the Rare Earth Industry (hereinafter referred to as the Guidelines), attaching more importance to the protection of resources and the environment, and the realization of sustainable development. According to the Guidelines, the government, in accordance with law, will strengthen control over the mining, production, circulation, import and export, and other links of the rare earth industry, and study and formulate as well as amend and improve related laws and regulations on the administration of this industry. The Chinese Government has established an inter-departmental coordinating mechanism for the rare metals industry to make overall plans and study of the national strategy, program, plan, policy and other important issues concerning the development of the rare earth industry. The state has also set up a rare earth office to coordinate and propose plans on the mining, production, reserve and import and export of rare earth materials. The relevant departments of the State Council will perform their respective administrative functions accordingly. In April 2012, the Association of China Rare Earth Industry was founded with official approval. It is expected to play an important role in promoting self-discipline in the industry, regulating the industrial order, and proactively carrying out international cooperation and exchanges, among other functions. A year or so has passed since the implementation of the Guidelines, the transformation of the development pattern of China's rare earth industry has picked up speed, and significant improvement has been seen in its development order.

(Source: Information Office of the State Council of the People's Republic of China)