Resources Policy 38 (2013) 384394

Contents lists available at SciVerse ScienceDirect

Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

Rare earth elements in China: Policies and narratives of

reinventing an industry
Jost Wbbeke n
Environmental Policy Research Centre, Free University of Berlin, Germany

art ic l e i nf o

a b s t r a c t

Article history:
Received 1 February 2013
Received in revised form
28 May 2013
Accepted 29 May 2013
Available online 18 July 2013

After top producer China decided in 2010 to tighten its export quotas for rare earth elements (REE), major
customers feared being cut off from the valuable metals. The trade dispute intensied when the EU, the
USA, and Japan brought the case before the WTO. The export controls raise questions about Chinas
intentions and strategies. This article argues that Chinas export policy should not be viewed in isolation.
The export controls are embedded in a greater transformation of the strategic REE industry. Beijing
promotes a broad set of policies, including industry reorganization, resource conservation, and
environmental protection. Next, the article examines three narratives that may be constitutive of the
Chinese policy. Findings indicate that the geopolitical narrative, which sees natural resources as
instruments of power politics, can be only partly attributed to Chinas REE policies. The major driving
motives are domestic concerns for resource conservation and environmental protection, as well as the
development of competitive downstream industries.
& 2013 Elsevier Ltd. All rights reserved.

Keywords:
Rare earths
Chinese resource policy
Export of raw materials
Mining and environmental pollution

Global production and consumption of rare earth elements

Rare earth elements (REE) are, contrary to the name, relatively
abundant in the earths crust. This group of 17 metals is commonly
divided into light REE (LREE) and heavy REE (HREE).1 The LREE
cerium is nearly as abundant as copper. Lanthanum and neodymium are quite common as well. HREE such as dysprosium and
terbium are less common, but even the rarest ones occur more
often than gold and silver. Only natural promethium does not exist
on the earth (Webelements, 2011).
Because of the low ore grade of most REE deposits and the
complexity of separation, extraction is protable in only a few
locations, mostly as a by-product of mining another metal (Gupta
and Krishnamurthy, 2005). There are currently 110 million tons of
global REE reserves, with valuable deposits distributed over the
globe. Half of these reserves are located in China; Russia accounts
for 17.3 percent of global reserves and the United States for 11.8
percent. Sizeable deposits are also found in Brazil, India, Australia,
Canada, and Greenland. The most commonly mined rare earth

Tel.: +49 17623943604, +49 30 68816866.

E-mail address: [email protected]
1
REE have similar physicochemical characteristics. They include the lanthanides
plus yttrium and scandium. Lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium and gadolinium are referred to as LREE or the cerium
group. Terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, and
yttrium are referred to as HREE or the yttrium group. Chinese sources also distinguish
europium, gadolinium, terbium, and dysprosium as middle rare earths.
0301-4207/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.resourpol.2013.05.005

minerals are bastnsite, monazite, and xenotime, with an average

rare earth oxide (REO) content of 75, 65, and 61 percent, respectively.
Despite their global distribution, REE are mined mainly in
China. China produced 95,000 t REE in 2011, down from
129,000 t in 2009. Chinas share of global production decreased
from 95 percent in 2009 to 86 percent in 2012 (Tse, 2013). China
has a near monopoly on the production of REE minerals, concentrates, and metals (Levkowitz and Beauchamp-Mustafaga, 2010).
REE are essential raw materials for a range of products. Thanks
to innovations in the latter half of the 20th century, global
production has tripled since 1985. One fth of REE being mined
is currently used for permanent magnets, 8 percent for phosphors,
19 percent for chemical catalysts, 20 percent for alloys, 13 percent
for polishing, and 8 percent for glass (Kingsnorth, 2012). These
products have end-use applications in electronics, environmental
and energy technology, metallurgy, military technology and many
other elds (Grasso, 2012).
For instance, neodymium-iron-boron permanent magnets (NdFeB)
make possible compact computer hard drives and highly efcient
generators and engines in wind turbines and electric vehicles. REE
used in magnetostrictive materials allow ultra-sensitive sonars for
military applications. REE-based phosphors are used in making more
efcient and stable energy-saving bulbs. Although employed in only
small quantities, REE signicantly improve product performance (BGS
(British Geological Service), 2011).
In 2011, 68 percent of the REE mined in China was used in the
country. Japan and North East Asia consumed 16 percent, the USA
10 percent, and others 6 percent. China dominates all immediate

J. Wbbeke / Resources Policy 38 (2013) 384394

Fig. 1. consumption of REE elements by country, various downstream industries.

Source: Kingsnorth, 2012.

downstream industries in terms of quantity (see Fig. 1) (Kingsnorth,

2012). However, its downstream industries focus on low-end products,
whereas foreign industries, Japanese in particular, dominate the highend segment.

Research interest
Due to the Chinese near monopoly on REE production and
processing, downstream production around the global is critically
dependent on Chinese supply. This is becoming problematic since
China is less and less interested in exporting its REE, and has been
decreasing its exports. Its 2010 decision to cut the REE export
quota by another 40 percent triggered serious concerns among its
major customers, the European Union (EU), Japan and the USA,
who requested consultations within the World Trade Organization
(WTO) in March 2012 (WTO, 2012).
These trade tensions are emerging in the context of growing
disquiet over instable resource supply in the West. Rising resource
prices, a discourse of impending scarcity, environmental degradation, and political decisions in source countries have led many
importing countries to put resource supply at the top of the
agenda and formulate raw material strategies. The REE symbolize
the new concern for a whole range of critical raw materials (DOE,
2011; European Commission, 2010). Why is China controlling its
exports? Understanding the intentions behind Chinas political
choices is central to Western economies and governments, as they
will have to rely on China for supplies for several critical raw
materials at least for some time.
The concern for critical raw materials is nothing new. Criticality
studies, centering on the identication of critical materials and
risks, echo similar issues in the 1970s and 1980s (Buijs and Siverers,
2011; Buijs et al., 2012). A limitation of these approaches is that they
analyze critical materials mainly from the angle of affordable and
undisrupted supply for the importing countries, sidelining the
efforts made by originating countries for resource and environmental protection and social policies.
Several OECD and WTO studies on the adoption of export
controls for raw materials in various countries argue that export

385

barriers to raw materials lead to adverse economic impacts. They

found that resource conservation and environmental protection
are frequent source-country explanations for applying export
controls (OECD, 2010; Fliess and Mrd, 2012; Ruta and Venables,
2012). Many studies deal with Chinas REE export controls and
their impacts on Western downstream industries (see for example
Massari and Ruberti, 2013; Humphries, 2012; Morrison and Tang,
2012; Levkowitz and Beauchamp-Mustafaga, 2010; Grasso, 2012).
This perspective, although important, underemphasizes the
Chinese regulation of the REE industry beyond the actual export
controls. Some Western authors have examined the Chinese REE
industry more thoroughly, and there are many Chinese analyses of
the domestic situation (Hurst, 2010; Seaman, 2010; ko-Institut,
2011; Su, 2009; Wang, 2011a). This article seeks to contribute to
these analyses by providing an up-to-date and in-depth view of
the political actors, current regulatory measures, and domestic
narratives in Chinas REE industry. This perspective links into the
literature on industry policy and regulation in China, which looks
into the intentions and instruments of government intervention in
Chinas strategic industries (Hsueh, 2011).
First, I show that Chinas policies extend well beyond export
regulation, involving industry reorganization, resource conservation, and environmental protection as well. The countrys mining
industries in general are currently in a process of transformation
(Tse, 2012). Second, to answer the research question about the
intentions behind Beijings REE policy, I bring in three narratives
that may be constitutive of this transformation. The assumption is
that these narratives provide the contexts in which the central
government formulates its interests and decides on policies.
Therefore, the empirical analysis and discussion of these narratives
focuses on textual statements of the central government and other
relevant stakeholders, including experts participating in policymaking, industry leaders, local government represents, and media
reports. The ndings indicate that the geopolitical narrative is
partially spread in Chinese society, but informs policy only to a
limited degree (Hao and Liu, 2011). Domestic dynamics including
resource conservation, environmental protection, and development of downstream industries dominate discourse and policy.
As the focus here is on Chinese domestic politics, I do not consider
the development of REE mines, policies, or downstream industries
outside China and Chinas interaction with consumer states.

Changing REE politics in China

A resource giant in chaos
Chinas economic modernization is a history of rampant
resource extraction. China now ranks rst in the world in the
production and consumption of various resources, among them
coal and iron ore (USGS, 2012). The Chinese REE era began when
the countrys biggest mine at Baiyun Ebo in the Autonomous
Region of Inner Mongolia started production in 1959, and three
rening factories began production in the early 1960s. However,
production was expensive and the quality lagged behind leading
producers, the USA in particular. The National Conference for the
Promotion of Rare Earth Application in 1975 noted that Chinas
backward REE industry even had to import ints, which use
mischmetal (Cui and Liang, 1975, no pagination). Chemist Xu
Guangxians invention of a cheaper method for separating single
REE enabled Chinese separation plants to achieve high-quality
production capacity of 10,000 t in the early 1980s (Wang, 2011a;
Shuai, 2011).
By the mid-1990s, China surpassed the USA as the world largest
producer of REE (USGS, 2002) (see Fig. 2). Due to environmental
problems with several spills from a waste pipeline and cheap

386

J. Wbbeke / Resources Policy 38 (2013) 384394

Chinese competition, the large Californian Mountain Pass REE

mine was closed down from 2002 to 2010 (Castor, 2008). The
mine at Baiyun Ebo produces half of Chinese REE. Other major
production centers are located in the autonomous prefecture of
Liangshan (Mianning) in Sichuan and several southern provinces
(Hubei, Hunan, Jiangxi, Fujian, Guangdong, Guangxi) (see Fig. 3,
Map 1, and Table 1). Whereas Inner Mongolian and Sichuanese
deposits contain mainly LREE, the ion-adsorption-type clays in
South China, in Jiangxi and Guangdong in particular, contain high
concentrations of the precious and expensive HREE. Deposits
elsewhere in the country have only marginal or no mineral
production (MEP (Ministry of Environmental Protection), 2009).
Chinas REE mining industry is very small compared with its
other industries. The coal and mining industries have outputs
valued at 1000 billion and 144 billion Renminbi, whereas the REE
industry has only 0.8 billion. Even compared to most small ferrous
and non-ferrous metals industries, the production, output value,
and prot of the REE industry are relatively low (see Table 2). REE
mining does not have as important a role for the Chinese economy
and society as does coalbut it is very important for some local
economies and governments, such as Mianning and Ganzhou
(Jiangxi). The entire REE industry, including immediate downstream products, had an output value of 37 billion Renminbi for
2010 and 85 billion for 2011. This is very low when compared to
the output value of steel-making and copper-making at 700 billion

and 357 billion for 2010. Steel accounts for roughly 10 percent of
Chinas GDP. Yet, the essential functions of REE in a range of hightechnology products make this a strategic industry of national
relevance (MIIT, 2012c; Zhao et al., 2011).
Whereas global REE production is highly monopolized, production
within China is scattered among many producers. The steelmaker
Baosteel Group Corporation (Baogang) controls the production in
Baiyun Ebo in Inner Mongolia, and the Ganzhou Rare Earth Mineral
Industry owns all mining rights in the Ganzhou area. The Jiangxi
Copper has mining rights for Maoniuping (in Mianning). After recent
industry reorganization, 22 companies ofcially own REE mining
rights. There are many small facilities for extraction, processing, and
separation in South China. Only few of the nationwide 170 ofcially
registered reners before 2010 have had capacities above 5000 t per
year, low compared to the industrys overall capacity of 200,000 t per
year (Wang, 2011a, p. 24). The downstream industries are also very
scatteredfor example there are 130 NdFeB producers (Rao et al.,
2009).
Inner Mongolia and Jiangxi are the largest centers of REE
processing and metals production in China, but there are also
sizeable capacities in Jiangsu and Gansu. There are strong downstream industries in Baotou, but the largest magnet producer
Zhongke Sanhuan is located in Beijing, with afliates in Tianjin
and Ningbo. Phosphor production is mainly located in Jiangsu,
Zhejiang, and Guangdong.
Chinese REE exports declined from the peak in 2007 of 57,400
to 15,660 t in 2011. In 2011, China exported about one fth of its
production: 56 percent went to Japan, 14 percent to the USA, 10
percent to France, and three percent to Germany (State Council,
2012). The Japanese share dropped below 50 percent in the rst
half of 2012, as the country is diversifying its import sources
(Peoples Daily, 2012a). Whereas REE exports are declining,
exports of REE applications are increasing. Compared to 2006,
the exports of NdFeB have nearly doubled in 2010. About one fth
of NdFeB production was exported in 2010, mainly to the USA
(13 percent), South Korea (9 percent) and Germany (8 percent)
(Liu, 2011).
Changing policies: From chaos to order

Fig. 2. Chinese production of REE concentrates and rened products and export
volume in tons (REO), 19782011.
Sources: Xu, 1995; Su, 2009; NDRC, 2010, 2011, 2012.

Fig. 3. REE production (in REO) by production centers, 19882011.

Sources: Wu, 2008, p. 122; NDRC 2010, 2011, 2012.

Although the development of Chinas REE industry has been a

government-sponsored project from the outset, it developed
differently from ofcial hopes: inefcient production (often with
processing recovery rates below 10 percent), low prices, fast
depletion rates, horrendous pollution, and lax control (State
Council, 2012). Efforts to reorganize the industry date back to
the 1970s. In 2002, the State Council had planned the restructuring
of the REE industry into a China Northern Rare Earth Group and a
China Southern Rare Earth Group, but failed to achieve this.
Since 2005, the central state and party leadership have been
promoting a profound, long-lasting, and concerted transformation
to gain a grip on this strategic industry. Main documents behind
the transformation are the draft for the Rare Earth Industry
Development Plan (20092015) and the Several Opinions of the
State Council on Promoting the Sustained and Healthy Development of the Rare Earth Industry of 2011 (hereafter: the Development Plan and the Opinions). According to media reports and
other publications, the Development Plan will allow no new REE
mining projects. Extraction is to be kept between 130,000 and
150,000 t and export below 35,000 t until 2015. However, the
originally planned export ban on dysprosium, terbium, thulium,
lutetium, and yttrium has become unlikely (Zhongguo Kuangquan
Wang, 2011; Tse, 2011).
The Opinions endorse general principles, goals, and division of
labor for reorganizing the industry. As this document was released
in midst of the policy efforts, what it provides is more an

J. Wbbeke / Resources Policy 38 (2013) 384394

387

Map 1. Areas with abundant REE deposits.

authoritative point of reference and conrmation of the current

policy than a new orientation. A major step in the Opinions is the
conrmation that a publicprivate strategic stockpile is to be
established (State Council, 2011). Under the guidance of the Inner
Mongolian Autonomous Region government, Baogang prepared to
stockpile 30,000 t REE; Jiangxi province did similarly (Tse, 2012).
The current policies mainly aim at the reorganization of the
industry, resource conservation, environmental protection, and
export controls.
Industry reorganization
The Raw Materials Ofce of the Ministry of Industry and
Information Technology (MIIT) is responsible for the development
of Chinas REE industry.2 It leads and coordinates national policy
efforts, and formulated the Development Plan, which seeks to
reorganize the industry. The number of separation enterprises is to
be reduced from about 170 to 20. In addition, the Opinions of the
2
The ofce was moved from the National Development and Reform Commission to the ministry in 2008 (Wen, 2008).

State Council on Promoting Enterprise Merger and Restructuring

species that the REE industry is to be restructured, with the focus
on promoting a few big players (State Council, 2010). In South
China, the three biggest producers are to account for 80 percent of
production. Meanwhile, Baogang has proposed the creation of a
China Northern Rare Earth Group under its leadership (Xinhua,
2012b). The reorganization aims at enhancing central state control
over the industry and curbing the adverse effects that the
government sees as emanating from a fragmented industry, e.g.
excessive competition pressing down prices, inefciency, and
environmental pollution.
Illegal mining is widespread, especially in the dispersed deposits of South China. Illegal miners have often a tacit agreement with
local authorities, which seek to increase taxes and employment.
Facing the challenge of widespread illegal mining and processing,
the MIIT is coordinating a countrywide campaign which has
handled 600 cases of illegal operations. By 2012, it had ordered
23 mines and 76 smelting factories to cease production (State
Council, 2012), although some may have reopened since. National
and local campaigns against illegal REE mining are continuing.
In 2012, the MIIT released the demanding Rare Earth Industry

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J. Wbbeke / Resources Policy 38 (2013) 384394

Table 1
Reserves, mineral production, processing, metal production and mining rights by province.
Sources: MEP, 2009; MLR, 2011a; Zhou and Han, 2010; Ma, 2012.
Prospective reserves
in 104 t REO

Industrial reserves
in 104 t REO

Extraction quota
in 103 t REO (2011)

Processing quota
in 103 t REO (2011)

Metal production
in t of metal (2009)

Mining rights
(2012)

I. Mongolia
Shandong
Sichuan
South China
Among these:

413,500
41300
4500
45000
Jiangxi
Guangdong
Fujian
Guangxi
Hunan
Yunnan

4350 (84%)
400 (8%)
150 (3%)
150 (3%)
36%
33%
15%
10%
4%
2%

50.0
1.5
24.4
17.9
9
2.2
2
2.5
2
0.2

35 (39%)
2.6 (3%)
11 (12%)
24.8 (27%)
13 (14%)
8.5 (9%)
2.5 (3%)

0.8 (1%)

8790 (38%)
?
700 (3%)
?
9587 (42%)
?
?
?
150 (1%)
?

2
1
7
57
45
3
5
1
1
2

Guizhou
Jiangsu
Gansu
Shaanxi
Other

4150

250

150

8.4 (9%)
7 (8%)
1.6 (2%)

?
1050 (5%)
1280 (6%)*
?
1500

Total

420,675

5200

93.8

90.4

23,057

67

Northwest China.

Table 2
Comparison of various Chinese mining industries.Source: Zhang and Liu, 2011.

Coal
Iron/steel
Rare earth
Tungsten
Lithium

Enterprises

Employees

Volume in Mio. t (Ore)

Output value in Mrd. RMB (Mining)

Prots in Mrd. RMB

14,357
4250
110
149
14

3,911,208
388,179
2296
36,948
3,215

2893
673
10.5
15.9
133

1059
144
0.8
5.5
0.8

193
25
0.11
1.1
0.08

Accession Requirements on production technology, energy use,

resource use, environmental protection, and safety, which also
apply for already existing market participants (MIIT, 2012a). If
these requirements are properly implemented, 20 percent of REE
production capacity might face elimination (Xinhua, 2012c).
The Opinions have also promoted the creation of the nationwide Association of the Rare Earth Industry under the MIIT as an
instrument of industry coordination. Whether the association has
sufcient authority in practice is unclear, but it is meant to guide
production, research the market, provide brokering services, and
function as a bridge between government and industry. It might
also coordinate export prices and quotas (Zhang, 2012). The
association currently has about 200 members.

Resource conservation
The Ministry of Land Resources (MLR) is responsible for
national land and resource plans, the exploration, development
and protection of national resources, and the geological environment (Lin et al., 2011, p. 39). The Ministry tries to realize resource
conservation through licensing and the use of production quotas.
In 2012, it cut the number of mining rights from 113 to 67. Most of
these mining licenses are issued by provincial land resource
management authorities. The REE production quota, which sets a
maximum cap on extraction, is based on the State Councils, 2005
Notice on the Restructuration and Standardization of Mineral
Extraction (State Council, 2005) (see Fig. 3). In practice, the
industry has far exceeded this quotaby over 40 percent in
2010. According to the National Mineral Resources Plan (2008
2015), REE production is to be limited to 140,000 t in the coming
years (MLR, 2009).

The MIIT began to set a quota for smelting and separation in

2010. As this quota differed markedly from the MLR quota,
coordination difculties between the two ministries created confusion for the industry in the beginning (Hatch, 2012a). To
complement the efforts of the MIIT against illegal mining (MIIT,
2011), the MLR designated eleven mining planning zones in Jiangxi
province (Xinhua, 2011a), transferring administrative oversight
from local authorities to the ministry in order to achieve better
information about the resources and control over the industry in
these areas (MLR, 2011b). In 2011 and 2012, REE production in the
major mining areas of Ganzhou (Jiangxi) and Inner Mongolia was
halted for several months (Reuters, 2011; Huang, 2012).
Beside production quotas and mining planning zones, the
Chinese government is taxing resource extraction. When REE
prices skyrocketed in 2011, the Ministry of Finance raised the
resource tax for REE from between 0.4 (for xenotime and ionic
REE) and three Yuan (for monazite and bastnaesite) to between
thirty and sixty Yuan per ton of extracted mineral (Zhang, 2011b).
There are also resource use compensation fees of three percent of
sales revenues for LREE and four percent for HREE (Shuai, 2011).
The State Administration of Taxation has established a special
invoice system for REE trade.

Environmental protection
The Ministry of Environmental Protection (MEP) tightened the
environmental standards for the industry in 2011. The Pollutant
Discharge Standards for the Rare Earth Industry replace the
general emission standards and set stricter maximum amounts
for pollutants in water and air and for the total discharge of waste
water, waste air, thorium, and uranium (MEP (Ministry of
Environmental Protection), 2011a). The radioactive elements

J. Wbbeke / Resources Policy 38 (2013) 384394

thorium and uranium are attached to some REE minerals. According to estimates, 80 percent of enterprises will fail to meet these
standards, and implementation could raise production costs by 70
percent (Zhongguo Gaoxin Jishu Qiye, 2011).
The softening of some parameters indicates an intense debate
between the MEP and the REE industry. According to media
reports, ammonia pollution was one of the hot topics of discussion
for the standards. In-situ leaching of ion-absorption REE uses large
amounts of ammonia sulfate solutions. The originally discussed
emission standard of 15 mg per liter of waste water for ammonia
was loosened to 20 mg/L in the draft of 2009, and to 25 mg/L in
the nal standards. This means that the standard for ammonia has
actually not changed compared to the general discharge standards
of 1996 (CRE (China Rare Earth), 2011; Administration of
Technology Supervision, 1996). As another concession to the
industry, the standards will apply only after 2014, whereas newcomers will have to commit immediately. As only larger enterprises can be expected to be able to adapt to the standards, this
might further push the concentration of the industry. Although the
government is proposing stricter environmental standards, the
erce struggle between environmental protection bureaucracies
and the industry might undermine the green motives of current
policies, and, due to its weak institutional position, the MEP might
not be able to prevail on many issues.
In 2011, the MEP released the Opinions on Strengthening the
Ecological Protection and Restoration of Rare Earth Mines, specifying
the monitoring and inspection of REE operations by Environmental
Protection Bureaus, obligations of REE companies to devise environmental protection and emergency plans, and pay deposits for mine
restoration (MEP (Ministry of Environmental Protection), 2011b).
Further, the General Administration of Quality Supervision, Inspection and Quarantine and the National Standardization Administration
are planning a new Norm for Per-Unit Energy Consumption in Rare
Earth Smelting and Rening Enterprises (AQS (General Administration of Quality Supervision, Inspection and Quarantine) and NSA
(National Standardization Administration, 2012).

Export regulation
Export regulation is a typical measure of Chinese raw materials
trade policy, although many of these regulations contradict Chinas
WTO obligations. The export quota and export licensing for REE
had been in place since 1999 without attracting too much criticism, but this changed when the Ministry of Commerce continuously lowered the quota since 2006 (see Fig. 4). The quota for 2012
was 30,996 t, compared to 48,010 t in 2005. The Ministry biannually issues export licenses and allocates specic quotas to individual enterprises. The enterprise quotas are calculated by a formula
that includes the amount and value of export of the past,
relevance of the enterprise and other factors (MOC, 2009). The
quota system for 2012 implies some changes: exporting enterprises must pass an environmental assessment of the MEP to get
an export license. Many companies that failed to pass the assessment rst received temporary quotas; those that failed a second
time, such as Baogang and its afliates, were not allowed to export
in 2012. Moreover, the new quota system differentiates between
LREE and HREE (Ni, 2011; Wang, 2012).
Besides the quota, the Customs Administration levies export
taxes on various REE products, ranging from 15 to 25 percent. Since
2007, these taxes have been increasing (from about 10 percent on
average) and more items have been taxed (Wang, 2011b). The tax
rebate for REE exports was removed in 2005 (L et al., 2011).
Smuggling remains a persistent problem for export regulation,
despite recent governmental crackdowns. Chinese exports statistics
are notoriously lower than the corresponding foreign import
statistics: between 2006 and 2008 there was a mismatch of

389

Fig. 4. Production and export quota from 2000 to 2011.

Source: Tse, 2011.

20,000 to 30,000 t annually, and for 2011, there was a difference

of 3000 t between Chinese and foreign statistics. Around 800 t
of smuggled material could be tracked down in 2011 and 2012
(State Council, 2012; Xinhua, 2012a). Exporters have also found
various legal loopholes. Iron alloys with a REE content above 10
percent could be exported, until the Ministry of Commerce included
them in the quota. The export of melt-spun ribbons, a raw material
for magnet production containing about 40 percent of REE, has
been rising rapidly, as this item is not included in the export quota
(Xinhua, 2012a).

A transformation with problems

The current transformation activated a broad set of concerted
policies involving many different ministries, local governments,
and market actors. Although the transformation is still underway
and it is premature to evaluate the policy, we can see that it faces
various challenges and has provoked several struggles in terms of
implementation and consequences. The main conict-lines run at
the national and international levels. With regard to the domestic
level, the central government must rely on the cooperation of local
authorities. Often, national policies can be effective only if they
are implemented locally. Provincial and sub-provincial governments have a strong hold in the industry, through monitoring,
supervision, licensing and control over local mining enterprises.
Beneting from taxes and revenues, especially county governments in poor areas of Inner Mongolia, Sichuan and Jiangxi have
an interest in increasing production. Several provincial industry
associations are skeptical towards quotas on production and
export (Ganglian Zixun, 2012).
The central state is trying to involve central governmentowned mining enterprises in local mining and processing of REE,
such as China Minmetals, Chinalco, and China Nonferrous Metal
Industry, and endow them with a strong position in the long run
(Zhang, 2011a). But many of these enterprises were long unable to
obtain local mining licenses, as provincial governments wanted to
protect their own companies (Zhongguo Hangye Yanjiu Wang,
2011). Central state companies could become active only in
smelting and separation. Minmetals could not break the strong
position of Ganzhou Rare Earth Minerals Industry for several years
(Wang, 2011a). The provinces of Guangdong and Fujian set up own
large provincial REE enterprises. Central government-owned
enterprises could obtain mining rights only in Guangxi, Hunan,
Yunnan, and Shandong with so far rather marginal production
capacities (see Table 3). Although the reorganization increased the
degree of concentration, the industry remains fragmented
between central, provincial, and some private enterprises.

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J. Wbbeke / Resources Policy 38 (2013) 384394

Table 3
Chinas largest REE enterprises in mining and smelting/separation.
Enterprise

Mining

Processing and separation

Central owned
Chinalco
China Iron and Steel Research Institute Group
Minmetals
China Non-ferrous Metals Mining

Guangxi
Shandong
Hunan, Yunnan

Jiangsu, Jiangxi, Guangxi

Jiangxi, Guangdong
Guangdong

Province owned
Baogang
Guangdong Rare Earth Group
Fujian Rare Earth Group
Jiangxi Copper

Inner Mongolia
Guangdong
Fujian
Sichuan

Inner Mongolia
Guangdong
Fujian
Sichuan

City owned
Ganzhou Rare Earth Minerals Industry

Jiangxi

Jiangxi

At the international level, China found itself enmeshed in struggles

with its trading partners and the WTO. Beijings policy had led to an
astronomic increase in REE prices which hit downstream industries in
China and around the world. The export controls and rising prices met
with dissatisfaction from the EU, the USA, and Japan. According to the
rules of the General Agreement on Tariffs and Trade, non-tariff export
barriers such as quotas or conditional licensing are not allowed (GATT
(General Agreement on Tariffs and Trade), 1994). Chinas accession
protocol prohibits export taxes, with the exception of some minerals
(Gu, 2011). Mexico, the EU and the USA led a WTO case against
Chinese export barriers for a range of raw materials in 2009, but not
REE. In 2011, the WTO dispute settlement ruled largely in favor of the
complainants, later reafrming this ruling after China appealed (WTO,
2011). In March 2012, a similar case was initiated against Chinese REE
export barriers. While China refers to export controls as a way to
achieve sustainable development, the complainants see this as a
distortion of free trade and discrimination of foreign businesses.
The outcome of this case will hinge on the interpretation of GATT
Article XX and the Chinese Accession Protocol. According to GATT
Article XX, temporary export controls are allowed if they serve
environmental or resource protection. Regarding the latter, if domestic production is decreasing or domestic consumption is constrained
due to resource protection policies, export controls might be a
legitimate measure. It is, however, unclear whether both criteria
must be met, or only one (GATT (General Agreement on Tariffs and
Trade), 1994; Gu, 2011). Moreover, China would have to prove that
export controls can help improve its environmental situation. One
question is whether export controls can be effective in the short
term: the rising prices due to export and production restrictions
incite illegal businesses to increase production further. It is also
debated whether Article XX can be applied to the obligations in
Chinas accession protocol. Whereas most Western observers expect
a decision in favor of the complainants, Chinese analysts largely see
China as compliant with WTO rules (Hatch, 2012b; Gu, 2011).
As one result of the export controls, companies in Canada,
Australia and elsewhere started to develop new REE projects.
These investments might have been necessary in any case, even
without Chinese export controls, since the current level of Chinese
production will be unable to satisfy the rising world demand in the
years ahead. Due to the complexity of REE processing, it will take
some time until these new operations can fully meet demand. It
can be expected that there will be an overhang of LREE, while
HREE will remain scarce for most of this decade.
Three narratives of Chinas REE policy
Three different narratives have developed in this situation,
providing a context in which the central government has formed
and implemented policies.

The geopolitical narrative

The geopolitical narrative sees control over natural resources as
a decisive factor for prevailing in power struggles in an anarchic
world. The Chinese policy and the relevance of REE for military
applications and national security triggered US government intervention in the REE industry in 2010 (He, 2013). The public debate
in China sometimes has such a geopolitical framing as well (Hou
and Wbbeke, 2010). There is a widespread concept of a defense
war (baoweizhan) in which China must defend its natural
resources against the offensive of the West. The ofcial news
agency Xinhua titled China declares Rare Earth Defense War
(Xinhua 2011b); and asked Will it be easy for China to win the
rare earth defense war? (Xinhua, 2012d).
Contrary to this alarmist rhetoric, Chinese politicians did not get
carried away by the geopolitical narrative. As stated by Chinese
Premier Wen Jiabao: It is necessary to exercise management and
control over the REE industry, but there wont be any embargo. China
is not using rare earth as a bargaining chip (Sina.com, 2010).
Shortly after complaining about the nebulosity of Chinese intentions, US Secretary of State Hillary Clinton said: [Chinese Foreign]
Minister Yang claried China has no intention of withholding these
minerals from the market (Kubota and Mohammed, 2010). The
Chinese leadership tries avoiding a politicization of the REE dispute,
according to MIIT Vice-minister Su Bo (Peng et al., 2012). In response
to the WTO consultations, the Foreign Ministry stated that it does not
want a monopoly position, but encourages other countries to contribute more to global production (Xinhua, 2012e). The Chinese
government has worked to dispel geopolitical allegations and has
shown willingness to discuss the dispute with other governments in
high-level meetings.
In political practice, however, the Chinese REE embargo against
Japan during the new round of escalation in the Diaoyu/Senkaku
Islands conict indicated a strategic use of REE in order to achieve
political concessions. Although Beijing did not issue an ofcial
statement, various traders reported that the trade ow to Japan
had been suspended. Western commentators interpreted this as a
use of Chinas REE monopoly position to force the release of a
Chinese captain detained after his shing vessel rammed into
Japanese patrolling boats near the islands. Even after the captains
release, China halted shipments to Japan for some weeks. The
customs administration may also have delayed shipments to EU
and the USA (Morrison and Tang, 2012).
Despite these developments, empirical evidence suggests that
the general Chinese export policy is not guided by geopolitical
motives. First, the lowering of export quotas occurred in a rather
calm environment. When China decided to lower the export
quotas signicantly after 2005, there was no provable discourse
over geopolitical aims. The use of the defense war label spread

J. Wbbeke / Resources Policy 38 (2013) 384394

only after the major consumer states had criticized the Chinese
practices in 2010. Second, the Chinese government has never tied
regular export quotas and taxes to demand political concessions
from other countries. Unlike the embargo in late 2010, the export
controls do not discriminate between countries. Domestic production controls also hurt Chinas own downstream industries
which does not make sense from the geopolitical perspective.
Third, how the quotas are used does not indicate geopolitical
intentions. In 2011, only 60 percent of the export quota was used.
Had China wanted to cut off the West from essential supplies, it
would have had to set the quota even lower (Gillispie and Pfeiffer,
2012). Had it wanted to gain military advantages, it would have
had not only to limit the export of REE but its applications in
particular, such as permanent magnets, which are essential to
military technology. There exist neither quotas nor taxes for the
export of REE permanent magnets.
The environmental narrative
The green narrative focuses on the depletion of non-renewable
resources and the environmental impacts of resource industries.
In 1991, the Chinese leadership designated ionic REE as a special
resource for protected extraction (State Council, 1991). This in
principle gave precedence to the central government over local
governments to decide over extraction and trade, although the
implementation of central government rules remained weak.
Whereas there was a consensus until the mid-1990s for increasing
production and exports of REE, concerns over inefcient resource
use and resource protection became apparent towards the end of
the decade (SDPC (State Development Planning Commission), 1998,
1999). The narrative of impending depletion of Chinese REE spread
in 2005, warning that China might be extracting the resources it
will need to satisfy tomorrows demand. A report by 15 researchers
from the Chinese Academy of Sciences (CAS) on the conservation
of resources at the Baiyun Ebo mine, sent to Premier Wen Jiabao,
had a groundbreaking effect in raising awareness of these issues.
The scientists warned that, because of the low recovery rate of REE
and the non-use of the niobium and thorium reserves, China could
waste its abundant resources. The report warned: If extraction
continues at current rates, the main and east pit [of Baiyun Ebo]
will beexhausted in less than 35 years, and China will become a
small power in rare earths (Xu and Shi, 2005, p. 448).
For the southern deposits, Xu Guangxian even estimates the
reserves could be exhausted within the next ten years (Sina.com,
2010). The authors recommend reducing production successively
at Baiyun Ebo, sealing off the east pit by 2012, and producing REE
only from the massive tailings of reneries in the Inner Mongolian
city of Baotou (Xu and Shi, 2005, p. 450).
The industry resisted extreme options such as the closure of
Baiyun Ebo, but agreed to use better technology and to consider
restrictions on production (Ma, 2006). The scientists call had a
considerable impact on subsequent political efforts. Politicians
took up the concern as to possible depletion, and Wen Jiabao
and Vice-Premier Zeng Peiyan issued comments (pishi) on the
report. In 2010, Wen Jiabao stated: China contributes a large
proportion of the global rare earth output, far outdoes exceeding
its share of the worlds total rare earth deposits (Sina.com, 2012).
The NDRC prepared the Report on the Situation of Development
and Use of Baiyun Ebos Resources and Related Issues and the
National Peoples Congress and the Consultative Conference composed several reports and recommendations (NDRC, 2007, 2008).
Studies of the local environmental protection authorities have
found heightened levels of radioactivity and other pollution in the
tailings dam and waters near the Baotou REE factories since the
1990s (Yang and Shuai, 2009). Moreover, much of the pollution of
the Yellow River in this area has been attributed to these factories.

391

But these problems were not deemed signicant at the national

and local levels until the CAS researchers warned against the
radioactivity and a possible collapse of the tailing dams at Baotou.
As an immediate consequence, the Baotou government paid more
attention to the issue. The vice-mayor of Baotou is quoted as
saying: If the tailings dam collapses, the waste waters could
threaten the drinking water security of the people of Baotou (He,
2010). Since 2007, the operator Baogang has been relocating these
villages, but many issues remain unresolved.
The 10 km2 tailings lake has been in use for more than 50 years.
Besides the REE not recovered during processing and hazardous
chemicals, it contains large amounts of radioactive thorium. For
years, villagers have reported increased cancer rates, decreasing
productivity in food crops, and other health and environmental
issues (He, 2010). Even if the dam does not fail, the hazardous
tailings come into contact with the environment through wind
and drainage.
At the national level, Vice-Minister Zhu has stated: these
mining areas give a ghastly sight where not even a blade of grass
grows anymore. If this situation is not improved, the production of
rare earths is actually not sustainable (Zhu, 2012). Su Bo, MIIT
vice-minister, notes: They [the foreigners] closed all mines that
had caused environmental pollution. By contrast, China has
supplied 90 percent of global demand at the expense of severe
pollution to our environment (REI, 2008, p. 4).
Development narrative
The development narrative focuses on the global division of
labor and economic power relations between countries. Developing countries export cheap raw materials, but are hardly able to
build own downstream industries and must purchase expensive
capital goods from developed countries. For China, the extractive
industries are not a major export sector, as minerals and rened
metals account for only 9 percent of total exports, compared to 44
percent for machines and electric appliances (National Bureau of
Statistics, 2011). China has run up a net trade decit in mineral
products of $270 billion. However, developmental issues do play a
role in certain local economies and downstream industries and are
relevant to Chinas aim of building an innovative economy.
In 1996, the government voiced concern over the low revenues
and prices of the REE industry. The State Planning Commission
(SPC), then responsible for management of the REE industry, as
well as Premier Zhu Rongji, urged a restructuring of the industry
in order to combat overproduction. President Jiang Zemin and Zhu
issued comments (pishi) on a report which held that the erce
competition causes the price decline of rare earth products (SPC,
2000, p. 2). Jiang Zemin said that China should do well with the
development of REE application and turn the resource advantage
into economic advantage (SPC, 2000, p. 2). Responding to this
attention from the top leadership, the SPC began drafting an
industry strategy in 2003 (NDRC, 2004, p. 2).
These policies revolve around two interrelated issues: it is rst
argued that China has lost the ability to set REE prices, the pricing
power, vis--vis international trading partners. This is a general
argument also applied to iron ore and oil, where Chinese buyers
supposedly have to accept international prices. According to the
government-sponsored Rare Earth Information journal, What
China buys becomes expensive; what China sells becomes cheap
(REI, 2010, p. 40). A Ministry of Commerce spokesman stated:
China has nearly lost its pricing power in the international trade
system (Zhao, 2011).
In the Chinese view, REE have been sold below their intrinsic
value. Although China has a monopolistic position, it still is seen as
unable to determine prices and is seen as a cheap resource
supplier (REI, 2007). Because market prices do not reect the

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J. Wbbeke / Resources Policy 38 (2013) 384394

alleged real value of REE, they have been referred to as pork

prices (zhuroujia), Chinese cabbage prices (baicaijia) or
dirt prices (tujia). Analysts see the problem as lying in the fact
that exports were rising and prices were falling. In 2007, prices
were at the level of the 1980s. A 2012 White Paper shares this
concern:

the price of rare earth products has remained low and failed
to reect their value, the scarcity of the resources has not been
appropriately represented, and the damage to the ecological
environment has not been properly compensated for (State
Council, 2012).

The leadership became aware of a report by a former Party

Secretary at Baogang, identifying the low prices as a cause
of resource losses (NDRC, 2008). The low prices in this period
were a driving force for tighter export controls as well as other
measures.
The second argument refers to the need to develop downstream industries within China and to direct foreign direct investment into the high-tech end of Chinese manufacturing. The 12th
Five Year Plan selected the REE downstream industries, including
permanent magnets, phosphors, hydrogen storage materials, and
abrasive polishing material, as newly rising advanced material
industries (MIIT, 2012b). China seeks to achieve advanced technology levels in these areas by 2015. According to Chen Yanhai, head
of the Raw Materials Department Chief at MIIT, a major problem is
that China is rather weak in research on REE materials (Gao, 2011).
Dissatisfaction with Chinas technological status is evident in a
study conducted by Su Wenqing, former director of China Rare
Earth Society, on the innovative capability of the REE industry:
Although Chinese nationals had 64 percent of REE related patents
between 1998 and 2002, these had low technology content.
Foreign patents, primarily registered by Japan and the USA,
account for 34 percent of patents registered in China, and are
more sophisticated (Su, 2009, p. 20). Core technology patents are
owned by Japanese enterprises. The high royalty fees have kept
Chinese competition out of high-quality markets like cutting-edge
NdFeB production. China is a leading NdFeB producer (about 80
percent of global supply), but Chinese magnets are much cheaper
and of lower quality than those from Japanese producers (Research
in China, 2010).
Therefore, developing downstream industries is in focus.
According to Lin Donglu, secretary of the Rare Earth Society, the
high-end application of rare earth materials has already become a
central aspect of Chinas rare earth industry development. According to MIIT Vice-Minister Su Bo, in the next steps, we encourage
foreign investments areas such as the environmental management, recycling and reuse of REE as well as high-end application
and the manufacture of REE production equipment (Peoples
Daily, 2012b).
Facing competition from leading Japanese high-end magnet
producers, the export controls can be understood as a measure to
limit or make more expensive their resource supply in order to
counter Japanese attempts to keep innovative production processes within Japan (Lifton, 2011). Many foreign companies had set
up joint ventures in China before 2010like uorescent bulbs
manufacturer Osram, magnet producer Vakuumschmelze, and
polishing powder producer ACG Seimi Chemical. These investments are often allowed on the basis on technology transfer.
Chinese government agencies recently blocked the attempt to
form joint ventures of TDK and Hitachi Metal with Chinese
companies for the production of NdFeB because the Japanese
companies refused to disclose core technologies.

Conclusions
This analysis has shown that concerns for resource wastage,
low prices, and dominance of low-end downstream industries
have been important issues in the drafting of Chinas REE industry
strategy since the late 1990s. Since 2005, government narratives
show more attention towards environmental protection. Together,
they merge in Chinas ambitions for creating an innovative and
sustainable economy. The geopolitical narrative is widespread in
Chinese society, but it is not evident in statements of the government, experts, or industry narrative; and general export policies do
not indicate such a trend. The case of the REE embargo in 2010,
however, shows that the Chinese government might be willing to
use its REE dominance for political ends in situations of security
crisis.
The case of REE industry adds to the literature on industry
regulation in China by showing that concerns over resource
depletion, environmental impacts, and low prices in technologically important elds can lead to concerted intervention from the
government in an industry deemed strategic. It thereby also
provides an example for OECD overviews of how source-states
justify export controls for raw materials. Noteworthy is that these
government interventions occur along whole value-chains, from
mining to downstream industries. As to critical materials and
resource security, this case does not indicate that resourcesupplying states have a long-term strategy to control resource
access in order to achieve political aims. In China, as we have seen,
export controls are domestically motivated.

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