China needs more regulation in the rare earth industry

We must “Rectify the rare earth industry, rectify the excessive and indiscriminate digging of domestic rare earth resources, rectify uncontrolled exploitation of rare earth resources, rectify the various contradictions in the development of the rare earth industry -including mining, smelting, trading and exporting. The Chinese government is duty bound to observe regulation on the sector. China’s restrictions on rare earth production and exports are meant to protect the environment and the resources, for which conduct should be above reproach.” Thus did Li Yizhong say before Chinese media on March 4 and March 6. Li Yizhong is the former minister of China’s Ministry of Industry and Information Technology (MIIT). He addressed “two summits” in Beijing this week, acting as the vice chairman of the Economic Commission of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC). Li was very big on the rectification theme, adding: “Should the rectification of China’s rare earth industries raise objections, especially from some Western countries, these are totally baseless. China will continue to firmly pursue the integration of its rare earth metals industry.”

Obviously, because of the accusations brought against China of breaking WTO rules on rare earth exports, the Mr. Li was not shy to express his annoyance at some Western countries, such as the European Union, the United States and Japan, which launched a rare earth complaint before the  WTO against China almost exactly a year ago.

My opinion is that the diversification of the supply of rare earth elements has gathered a consensus and an acceptance throughout the global market. In spite of facing the rare earth WTO lawsuit, China will continue regulating the sector whether it wins or loses the trade dispute. And why is that, you ask? We must be willing to concede that the Chinese rare earth industry has been, for lack of a better term, rather a bit of a dog’s breakfast in the past few years. The country’s rare earth industry had been harmed by illegal mining, chaotic production and exports. The export quota system helps curb the messy situation softening throat-cutting competition of rare earth exports while offering other producers of non-Chinese rare earths projects a chance to boost their production.

Does this mean China’s export quota system will never be removed? Perhaps, but this is not a bad thing. Due to China’s rare earth metals industry relatively small scale, it features a high concentration rate with numerous businesses. At the same time, it lacks large enterprises with core competitiveness. Self-discipline in the industry is also weak, and vicious competition exists. Moreover, there are many problems that ensued due to a lack of sound legal regulations, therefore, it is difficult to avoid that some less than honorable ‘enterprises’, operating in a way that shows a low sense of responsibility and flagrant disregard for the law will certainly be seduced by the lure of high profits. They start to gamble, foregoing any moral principles in the pursuit of profits. Therefore, the integration of the rare earth industry is essential for China. Only after integrating the currently fragmented industry, will state-owned large enterprises have the sense and ability to control productivity and prices, even without government restriction and supervision. When this is achieved, and only then, China’s export quota system could be lifted.

I believe that China will remain firmly integrated within the rare earth metals industry. The central government has set targets to encouraging mergers in rare earth industry sectors to enhance the state-owned large enterprises’ global competitiveness.