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China’s Rare Earth Motives

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New Leaders Forum

China’s Rare Earth Motives

China claims its restrictions on rare earth exports are about the environment. It’s not the most convincing excuse.

China is the dominant producer of rare earth metals, which are increasingly fuelling the global high-tech and green economy. From 2009 to 2010, Chinese mines accounted for 259,000 tonnes out of a total global production of 263,000 tonnes of rare earth oxide. But with this massive production has come ever more restrictive measures to control the export of these commodities.

China claims it’s doing so to protect the environment and argues that tighter measures are necessary to ensure rare earth mining industry remains sustainable. However, major consumers of rare earths including Japan, the United States, and EU states counter that recent Chinese actions to reduce exports contravene World Trade Organisation rules on free trade.

So, is China merely exercising its legitimate right to protect its environment as its government claims? It seems unlikely, whatever the protestations of Chinese Premier Wen Jiabao, who has tried to re-assure EU leaders that China isn’t using its rare earths monopoly as a geopolitical bargaining chip.

As was covered here last September, China suspended rare earth exports to Japan after an incident in the waters off the disputed Senkaku Islands, in which a Chinese fishing vessel captain was detained by the Japan Coast Guard. The Chinese government claimed it didn’t issue any specific directives to suspend exports, and said any suspension was the result of the spontaneous and uncoordinated actions of various producers and exporters.

Yet there are strong indications that the Chinese government exercises considerable control over the rare earths industry. Since 2006, the Chinese Commerce Ministry has been reducing export quotas, as well as limiting and cutting the number of firms that are allowed to export rare earths in their raw form. In 2006, 47 Chinese companies had permits to export rare earths, but by 2010, only 22 companies were allowed to do so. Unsurprisingly, as the number of export permits has fallen, so too has the volume of exports. In 2008, combined export quotas for the year totalled 56,000 tonnes, while in 2009 they totalled 50,142 tons, before being dropped again to 30,258 tons for 2010.

But although export quotas are by far the most contentious policy measure, a range of other actions have been taken that impact the rare earth industry. For example, export taxes on rare earths were also established in 2007 to compliment export quotas. Originally set at between 15 percent to 25 percent, depending on the oxide or concentrate being exported, the rates on many more rare earth products are expected to be raised by 25 percent in 2011. The Ministry of Land, meanwhile, has also suspended issuing new mining permits, and it remains to be seen if China will issue new mining permits after the moratorium ends on 30 June 2012. Chinese production of rare earths is likely to be further restricted by stringent new environmental standards that will force existing dirty mining companies to cease operations as they are unable to secure the now necessary ISO 9000 certification standard.

Yet if environmental considerations were really the main factor behind the imposition of export quotas, this wouldn’t be enough to explain the sudden suspension of exports to Japan last September, nor the current negotiations to supply Taiwan with more rare earth exports.

And what of China’s claims of trying to ensure the sustainability of its rare earths? This also isn’t very convincing with China’s rare earths reserves having increased from 43,000,000 tonnes to 55,000,000 tonnes between 1996 and 2010. True, the supply of rare earths, like other natural resources, is finite. But the discovery of new deposits, as well as improvements in technologies allowing the mining of previously inaccessible ores, has increased supply and reserves.

The reality is that China’s environmental record is less than stellar, rendering its current insistence on imposing stringent environmental standards on an industry in which it has come to dominate on the basis of lax environmental and labour standards rather convenient.

And the problem is that this approach doesn’t just undermine China’s arguments over the validity of its rare earth policy – it also undermines any environmental zeal the Chinese government may really have.

Ming Hwa Ting teaches at the University of Adelaide.