The government is committed to relaxing rules to open up foreign and domestic investment opportunities


In mid-December, China’s ministry of commerce announced the first round of rare earth export quotas for 2014, in direct contravention of the World Trade Organisation’s (WTO) ruling against Beijing’s quota policy in late October last year.

However, there was a nod towards implementing one of the plenum’s overarching policy goals to reduce environmental degradation, in that Inner Mongolia Baotou HEFA Rare Earth Co. was omitted from the list because of “environmental issues”.

“The market will play a decisive role, but only in so far as the central government is comfortable with the impact on a range of contentious issues: the shift from exports to domestic consumption, reform of the financial sector, environmental remediation, and other[s],” said Jeff Green, president of JA Green and Company, a governmental strategic affairs consultant.

“The rare earths sector touches several of these at once – overcapacity, environmental hazards, and a generally decentralised industry with some very powerful state owned enterprise – reforms are taking place, like the crackdowns on environmental violations and closing some illegal mines. However, these changes surely are neither at the pace nor at the magnitude at which the ‘decisive role in allocation of resources’ mantra would seem to suggest,” he told IM.

Earlier this month, the government unveiled a plan to offer support to six rare earths industry leaders, including Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co.; China Minmetals; aluminium producer Chinalco; Ganzhou Rare Earths Co.; Xiamen Tungsten Co.; and Guangdong Rising Nonferrous Metals Co., to spearhead industry consolidation in their regional power bases.

“Rare earths is a special market in which the Chinese government will continue the tight grip over the sector by accelerating domestic consolidation,” said Beijing-based North Square Blue Oak analyst, Frank Tang.

“Generally speaking, the mining and separation businesses will still be controlled by the government through state-owned enterprises, while downstream applications court more foreign participation due to their technical limitations,” he added.

“China may be willing to accept much more participation of private capital (foreign and domestic) in research and development joint ventures or joint ventures with existing producers for the purposes of expanding and sharing environmental best practices and more efficient utilisation of rare earth resources,” added Jeff Green. “The latter is particularly important because many Chinese magnet manufacturers, for example, are much less efficient than their Japanese and European counterparts.”

The complete article is available here.