Chinese White Paper on Rare Earths Signals Shift in Global Market

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By Joshua Gill

Jun. 25 – On June 20, Chinese news agency Xinhua published an English-language version of a white paper promulgated by the Chinese government detailing its plans to limit exports of rare earth metals.

The group of 17 metals, known collectively as rare earth metals, has not proved economically viable to extract in regions of the world other than China in recent years. This is partly due to the fact that rare earth metal ores are usually found in low concentrations, and partly due to the fact that China crowded out the rare earth metals market in the 1990s through cheap labor and lax environmental regulations. China effectively undercut the prices of their competitors until they were forced to shut down.

Since 1990, China’s share of the global rare earth market has increased from 27 percent to its current production levels of roughly 95 percent. This is alarming since rare earth metals are necessary components in virtually all modern technological products; from cell phones, to green technology, to defense equipment.

China’s dominance of the rare earth market led the United States, the European Union, Japan, and Canada to file a complaint with the World Trade Organization in March of this year. They argue that China’s policies in regards to exports and tariffs on rare earth metals violate free trade rules and artificially inflate global prices. Other allegations include speculation that China’s high international prices are meant to give local manufacturers an unfair advantage and entice foreign corporations that use rare earth metals in high-end manufacturing to China.

In response to the WTO complaint, and to the buzz that it created in the ensuing months, China issued its June 20 statement. The content of the white paper, entitled “Situation and Policies of China’s Rare Earth Industry,” describes how a lack of proper regulations has led to excessive mining and environmental degradation in China.

It claims that due to excessive mining, most of the country’s easily accessible reserves have been depleted. The white paper goes on to claim that China possesses only 23 percent of the world’s reserves of rare earth metals, rather than the 36 percent that the U.S. Geological Survey estimates. To combat these problems, China has issued a quota on exports of rare earth metals as well as increased regulations for the industry. It has also asked other countries to start focusing on local sources for rare earth metals.

Quotas and other restrictions are predicted to affect the prices for goods that require rare earth metals for production. Japan, which imports 60 percent of China’s rare earth metal exports, knows firsthand how quotas can affect the market, as they got a rude awakening in 2010 when China cut its exports to the country. Later that year, Japan signed an agreement with Vietnam to cooperate in exploration and exploitation of rare earth metals.

This is not the only action taken in response to China’s market dominance. A company called Molycorp has already reopened its Mountain Pass mine in the U.S. state of California which was forced to shut down during the period of cheap Chinese rare earth metals.

While Chinese quotas and market manipulation of rare earth metals is not new, the recent action of the Chinese government signals that the market is undergoing fundamental shifts. Just as Japan took action to counter Chinese quotas in 2010, so will the global economy shift to accommodate Chinese quotas today. Whatever their intentions, the actions of the Chinese government have paved the way for greater market diversity, whether the world is ready for it or not.

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