Situation and Policies – China’s Whitepaper on Rare Earths
IITM CSC Article #31
19 July 2012
Situation and Policies – China’s Whitepaper on Rare Earths
On 20 June 2012, the Chinese government published its first whitepaper on rare earth elements. China is the world’s largest depositor, producer, consumer and exporter of rare earths, controlling 97 per cent of the global supplies.
The document justifies the Chinese export restrictions of these critical elements and defends China against the WTO case filed by the European Union, United States, and Japan. Users of the minerals in industrialised countries now face tighter supplies and higher prices. China has cut its export quotas for rare earths by 35 per cent in 2011, threatening to extend a global shortage of the minerals needed for smart phones, hybrid cars and guided missiles.
The whitepaper reveals a number of policy measures of the Chinese government with regard to this industry. The recent controversy about the rare-earth industry in China and the future global supply of these critical raw materials is heightened in the document. The paper states that China has just 23 percent of the world’s rare-earth minerals, not 36 percent as the U.S. estimated.
The white paper comprises of 6 sections, with a few overlapping narratives. The important among them, ‘Current Situation of China’s Rare Earth Industry’ provides a comprehensive view of the industry. The paper states that China has achieved a complete industrial system from mining to end-product utilization covering over 400 varieties of rare earth products in more than 1,000 specifications. In 2011, China produced 96,900 tonnes of rare earth smelting separation products, accounting for more than 90 percent of the world’s total output.
Section two presents “Principles and Targets of Development” in the rare earth industry. The principles that will guide the industry are stricter standards for ecological protection, quicker steps to implement the conglomerate strategy, promote structural adjustment of the industry, actively push forward technological innovation and strictly control the mining etc. The targets of development include establishment of a regulated and orderly system of rare earth resource exploitation, smelting and separation, market circulation, effectively controlling both the exploitation of resources and deterioration of the ecological environment and rampant smuggling.
To address the salient problems in the development of the rare earth industry, the Chinese government has tightened supervision over it. In May 2011, the State Council issued “Guidelines” on rare earth industry. China continues to implement a wide-ranging industrial policy of consolidation, accelerated over the past years, with the closure of hundreds of mines and the acquisition of many smaller producers by the country’s major mining companies. These policies are directly linked to China’s long-term objectives to become an innovation hub by 2020 and a global scientific power by 2050. The paper also cautions that ‘China will never develop the rare earth industry at the expense of its environment’.
The remaining sections of the whitepaper emphasize on the objective of controlling the rare earth industry in China to prevent over-exploitation and competition, and to advance the effective protection, scientific and rational use of these superior mineral resources. In 2011, rare earths took on new strategic importance in China’s drive for technological leadership. The elements were formally placed under the purview of the powerful Ministry of Industry and Information Technology. The MIIT is the architect of China’s industrial policy and a champion of consolidation, and the ministry has been tasked with shaping the development of these emerging sectors, which will drive demand for rare earths. In general, the Ministry of Industry and Information Technology is responsible for the mineral industry; the Ministry of Land and Resources is responsible for mineral mining and exploitation; and MOFCOM is responsible for mineral trade.
China’s imposition of export quotas on several rare earth metals, on the grounds that it needs the higher quantities for its clean energy and high-tech sectors, is squeezing an already starved global market. China insists that its export restrictions fit within a legal exception to WTO rules, because its measures aim to protect the environment. The white paper also highlights the problem of environmental hazards and natural resources depletion as the core issue. The report also justifies Chinese policies as endeavoring to ensure a sustainable and healthy development of this industry.
China’s dominance in the rare earth supply chain is directly related to Beijing’s consistent and long term planning and, constantly expediting reform in the rare earth industry, promoting the development of a market system featuring diversified investment, independent decision-making by businesses and pricing according to supply and demand. After many years of development, China has established a relatively complete R&D system, pioneered numerous technologies of international advanced levels in rare earth mining and dressing, smelting and separating.
Over all the Chinese science and technology system works on a model of top-down, state directed science and technology programs to spur developments in strategically important areas. This kind of centrally planned system in China has favoured applied research for economic and strategic importance. The PRC government has become a leader in a technology commercialization drive. State Enterprises promote links between research institutes and commercial firms. China’s conglomerates are continuously directed by the government to set up their own research and technology development centres and take over public research institutes.
To conclude, China’s pre-eminent success in the industry is the result of careful thought and consideration at the highest policy making levels coupled with tremendous pragmatism, discipline and calculated risk-taking at the ground level, where decisions are implemented in county/city governments and individual companies.