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http://www.economist.com/node/21546013

Is Chinas grip on essential minerals

loosening?Feb 4th 2012 |Hong kong | from the print edition

ALL that glisters is not gadolinium. Even so, that mineral and its 16 rare earth cousinsfound

in everything from batteries to catalytic convertersdo help make the modern world go round.

And, as the worlds manufacturers of such products have been reminded recently, China has achokehold on their production.

Chinas grip on rare earths first made headlines in 2010, when it suddenly cut exports to Japan.But it had been squeezing the market for years. In 2000 it exported some 47,000 tonnes of the

stuff; by 2010 it exported only about 30,000 tonnes. This decline appeared to be the result of

unfair export taxes and quotas.

Mine, all mine

In this section

http://www.economist.com/node/21546013http://www.economist.com/node/21546013http://www.economist.com/node/21546013http://www.economist.com/node/21546013

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Western powers have threatened to take the case to the World Trade Organisation (WTO). This

week they seemed to get a boost when that body ruled against China on a related case. On

January 30th an appellate body of the WTO ruled that Chinas policies to restrict exports ofseveral metals, like bauxite and magnesium, violated its WTO obligations. American and

European officials cheered, arguing that Chinas rare-earth policy must now also be scrapped.

Some pundits say China might even pre-empt further legal action with a deal to drop its quotas.

Such celebrating may be premature. For one thing, Chinas leaders have taken a hard line on

trade of late, imposing fresh tariffs on imported poultry and sport-utility vehicles. On the heels of

this weeks ruling a Chinese official declared defiantly that we are fully prepared to fight any

challenge on rare earths. Gary Hufbauer of the Peterson Institute for International Economics is

convinced that Chinas policies add up to a disguised restriction on international trade butcautions that any case on rare earths will be harder to win on its merits than this weeks one. That

is because there is a stronger environmental argument for restricting the supply of rare earths, the

extraction of which produces toxic chemicals.

China also has other means of retaining control of the market besides export quotas. It has lots ofcapacity to refine rare earths, whereas most rich countries do not, so it can exercise control

downstream. Rare-earth prices are also not likely to drop soon, even if the WTO rules against

China again, because the Chinese have forced the industry to consolidate. There were once many

miners but the country has recently shut down dozens of operators in Inner Mongolia and

elsewhere.

Take the long view, though, and Chinas policies seem destined to fail. Although the country

produces over 90% of rare-earth minerals today, it controls less than half of the global resource

base. Restricted supply and higher prices have already spurred the development of big mines in

Australia and in America, where a large Californian mine called Mountain Pass reopened late

last year. In time, this fresh supply will take market power away from China. For the Chinese,rare earths are simply not rare enough.

Export quota for mineral resources, rare earth to increase price

Impose tariff on imported poultry and SUV

Chinese policies add a disguised restriction on international trade

Critics say in the long run, China will lose its competitiveness with the technology transfer since

other countries will develop big mines and increase the supply and take the market power fromChina dynamic gain from policy

http://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-

industry.html?pagewanted=all

http://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-

to-Western-technologies.html

http://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-industry.html?pagewanted=allhttp://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-industry.html?pagewanted=allhttp://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-industry.html?pagewanted=allhttp://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.htmlhttp://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.htmlhttp://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.htmlhttp://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.htmlhttp://www.telegraph.co.uk/science/8385189/Rare-earths-why-China-is-cutting-exports-crucial-to-Western-technologies.htmlhttp://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-industry.html?pagewanted=allhttp://www.nytimes.com/2011/09/16/business/global/china-consolidates-control-of-rare-earth-industry.html?pagewanted=all

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International competitiveness refers to the nations ability to produce, participate and compete in

the global market. There are different ways to measure a countrys competitiveness, such as

labors productivity or unit costs of production. The term international competitiveness is highly

important in the world today, with the advent of globalization. In the global economy, people are

becoming more and more connected, and the border of domestic and international issues is

getting blurred.

The article highlights an issue of competitiveness in China. According to the article, China has

the advantage in producing rare earth minerals, which are used in a wide range of hardware

including precision-guided weapons, hybrid car batteries and iPads. The source of Chinas

competitive edge comes from cheap labor, huge capacity to refine thanks to existing factories,

and abundance of land and resources. As a result, China becomes the predominate supplier of

rare earths,producing nearly 95 percent of the worlds rare earth materials (source: NY Times)

China has rare earths deposits in the southern provinces of Jiangxi and Guangdong, where the

metals can be found in high concentrations in clays a few feet below the earth's surface

The key issue mentioned in this article is the Chinas attempt to regulate the market with tariffs

and quotas. On one hand, the Chinese government imposes tariff on poultry and SUV. On the

other hand, it strictly enforces policies to cut down the export for rare earth materials with taxes

and quotas. Such regulations have been receiving a huge wave of discontent by Western

countries. Although there are some argument in favor of restricting the production and trade of

mineral resources, like environmental concerns due to the extraction of toxic mining, China is

still believed to use a disguised restriction on international trade. The reason is that China can

monopolize the market by promoting scarcity in the global market. As a result, foreign

manufacturers in America and Europe have to face tighter supplier and higher costs, and China

can raise more revenue.

Additional research: Dynamic comparative advantage by governments will (in the past, China

was not the leading producer of rare earths, and it is believe that in the long run, other nations

will take over China as the main supplier of such materials). Compare with OPEC (the industry

of producing natural resources), the cost to environment can be enormous

Environmental considerations: Wastes from the refinery have serious consequences

Political motive: Produce high value added products instead of raw materials

Analysts believe that in the long run, other nations will take over China as the main supplier of

such materials. It is essential to refer to the dynamic comparative advantage, a processhappens when the government actively involves in promoting opportunities for change through

time. In fact, several international mining companies are racing to fill the gap, prospecting for

deposits in Canada, Australia, South Africa and Greenland. Some, such as Molycorp, the US

Company that now owns the Mountain Pass mine, did reopen last year. With the industrial

policies to develop and revitalize the industry, other nations will soon take the market power

away from China.

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1. International competitiveness

2. China rare earths:- Historical data: production, trade (with other countries)- Features contribute to competitiveness: natural resources, capacity of production

(land, labor, capital, cost of resource inputs), compare to other countries.

- Trade policy: Export quota cut downstream(reason? horrendous pollution,toxic andhealth damage) and its effect=>show competitiveness

3. Argument on China competitiveness: no longer competitive enough,others emerging, long run?he

China is a big country ofrare earthindustry.Rare earth resources, production, consumption and exports

rank first in the world, However, resource advantag- es does not mean that industrial advantages. China

has not yet been a powerful nation ofrare earthindustry.On the one hand, the overall level of Chinas

rare earthindustryis in the low end of the worlds rare earth industry chain. China is relatively weak in

the rare earth basic theory and applied research, the ability of new product developm- ent is poor, The

imitated is more but the original is little.Research theory conversion rate is low, industrial process is

slow.The other hand, at the concept of industrial development, Chinas rare earth industry as a whole

based on the extensive operation, rare earth production and export of primary raw materials account

for a large proportion, leads to excessive consumption of chinas rare earth resources, and industrial

core competitiveness is weak. The influence of rare earth industry in China is not strong, affecting

Chinas rare earth industrys competitiveness in the international market

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