China’s Rare Earth Industry is Still Dominated by Illegal Operations

Despite a two year campaign aimed at cleaning the sector and removing all unlawful operations, China has admitted that its rare earth industry still suffers greatly from pollution, smuggling, and illegal mining.

Rare earth elements provide vital functions in all modern day technologies, and China holds an almost complete monopoly of the market, producing more than 90% of the world’s rare earth metals. In an attempt to create more order in the sector the Chinese government has tried to consolidate output under the control of six large state-owned miners, and have set strict production and export quotas on a small number of authorised firms.

The large, developed economies of Europe, Japan, and the US, have all submitted complaints to the World Trade Organization that China’s actions are restricting supply of the vital rare earth elements to the global market, and thereby giving Chinese technology firms a huge competitive advantage. China argues that it is not willing to put a strain on REE producing regions, such as Inner Mongolia, and potentially damage the environment, just so that it can supply large volumes to the global market.

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Whilst concerns for the environment in Mongolia may seem dubious reasons for China, not historically the most environmentally conscious of countries, to want to restrict rare earth production, the attempts to consolidate the market in order to flush out all illegal activity do seem more genuine.

Unfortunately progress has been slow. Su Bo, the industry’s vice-minister, explained that local governments have been protecting many of the illegal operations meaning that the new laws and regulations were not implemented properly. Now the local governments have once more been ordered to clean up illegal activities, with new, even stricter rules to be released soon.

The six firms, which include giants Minmetals and Chinalco, will continue to grow their control of the sector by absorbing smaller REE producers, and will play an important role in reorganising the industry. Just last week, Inner Mongolia Baotou Steel Rare Earth Group announced that it had taken control of nine regional mining companies after signing a deal with the local government.

By. Charles Kennedy of Oilprice.com