China’s Rare Earth Exchange Begins Trading Following WTO Ruling
SHANGHAI – China’s first rare earth exchange, Baotou Rare Earth Products Exchange, announced in a statement last month the commencement of trading in three rare earth metals – europium oxide, praseodymium-neodymium oxide and cerium oxide.
Following an adverse ruling by the World Trade Organization (WTO) regarding China’s export regulations on rare earth metals, China’s Baotou Exchange is expected to regulate the country’s rare earth market while improving price formation and promoting industry development.
Based in Baotou City in the Inner Mongolia Autonomous Region, the exchange will feature price bidding, listed trading and real-time trading online for more than 10 items when it is fully operational. RMB-based daily price movements are limited to a 6 percent range.
Baotou Steel Rare Earth Hi-Tech Co., China’s leading rare earth producer, and 11 other firms and institutions with a total registered capital of RMB120 million (US$19.32 million) will participate in the exchange.
Rare earth metals are 17 chemically similar elements used in the production of automotive, high-tech and electronic products. Extracting them is a dirty process, however, and often results in significant environmental damage and lasting pollution.
Accounting for more than 90 percent of the world’s total market supply of rare earth metals, China controls roughly 50 percent (55 million metric tons) of known global reserves. After China, the second largest rare earth deposits lie in the Commonwealth of Independent States (former Soviet Republics) followed by Australia, the U.S. and India.
In 2007, China justified the introduction of production and export quotas as necessary to reduce pollution and conserve deposits. On March 26, however, a dispute-settlement panel at the WTO sided with the U.S., Japan and EU in their complaint that China’s quotas did not reflect domestic trading restrictions, and instead sought to fulfill industrial objectives.
In light of the ruling, the Association of China Rare Earth Industry is now studying the WTO report to help determine whether there will be an appeal, which must be filed within 60 days of the March 26 ruling.
“Many Western countries stopped the extraction to protect their environment, turning to other countries for purchases. China has been supplying 90 percent of cheap rare earths to the whole world,” criticized an overseas edition of the state-run People’s Daily.
“Once the industry is cleaned up and regulated, prices of exports will reach a reasonable level…it will no longer be possible for the U.S., EU and Japan to import our rare earth resources at dirt cheap prices,” added the Beijing News.
In light of the WTO ruling, many investors are unsure how the market value of rare earth elements will react. In 2010 and 2011 prices spiked and then tumbled, rising from an average price of US$5,589 in 2010 to US$158,389 in 2011 before falling nearly 70 percent shortly thereafter.
If foreign competitors begin to threaten China’s rare earth element industry, some analysts fear Chinese firms may respond with a price war in order to undercut U.S. and Australian producers.
As China mulls an appeal to the WTO ruling, investors will undoubtedly keep a close eye on the newly christened Baotou Rare Earth Products Exchange for signs as to how a possible price war over these critical elements will play out.
You can stay up to date with the latest business and investment trends across China by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.
China Retail Industry Report 2014
In this special edition of China Briefing, we provide an overview of the retail industry in China and the procedures for setting up a retail shop, focusing specifically on brick-and-mortar physical retail stores. Further, we have invited our partner Direct HR to offer some insights on the talent landscape in the retail industry, as well as tips for recruiting retail personnel in China.
Guide to the Shanghai Free Trade Zone
In this issue of China Briefing, we introduce the simplified company establishment procedure unique to the zone and the loosening of capital requirements to be applied nation-wide this March. Further, we cover the requirements for setting up a business in the medical, e-commerce, value-added telecommunications, shipping, and banking & finance industries in the zone. We hope this will help you better gauge opportunities in the zone for your particular business.
Dezan Shira & Associates' founder Chris Devonshire-Ellis compares the cost of doing business in China, India and ASEAN. He talks about staying compliment in the Chinese and ASEAN markets and discusses recent regulatory changes, including financial and due diligence issues affecting US companies interested in expanding into China and ASEAN.
Dezan Shira & Associates alumni Manuela Reintgen from its Beijing office, divulges the integral information necessary to handle individual income tax in China. Manuela explores three main topics: First she explains who pays, when they pay, and what individual income tax is levied on.
Adam Livermore discusses the HR and Payroll situation in China. In this particular session, he took questions the audience had from the first podcast and provided clarifying, enlightening information.