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China - Record High Rare Earths Prices Promoting Illegal Mining

Six months ago, China's exports of rare earth elements (RREs) breached the dizzying price of $100,000 per-ton barrier, a nearly 900 percent increase in prices from a year before, representing a remarkable $50 per pound for unprocessed ore.

According to the CIA World Factbook, the estimated 2010 annual income for Chinese citizens overall was $7,600, or a princely $633 per month, or 12.6 lbs of raw rare earth ore, not that the excavators get anywhere near that final amount.
As a rough rule of thumb, the further one goes westwards from China’s coastal regions, with its prosperous cities like Shanghai, Hong Kong and Beijing, the lower the salaries.

In Inner Mongolia, where many of the ethnic Mongolians are still pastoral, raising cattle and sheep, the annual income is $773 per year, according to China’s National Bureau of statistics. At $50 a pound, a cunning Mongol need only dig up 15.5 lbs of ore to equal his annual income.

And authorities wonder why illegal mining is soaring? Furtively mining ore versus 365 days on the steppe in all kinds of weather tending livestock, is it any wonder why itinerant Mongols are furtively mining RREs?

What has authorities alarmed is that the illegal mining operations use ammonium sulfate and oxalate to extract rare earth metals, contaminating local water supplies. As China has no legislation specifically addressing illegal rare earth metal mining, local law enforcement punishes wildcatters using local regulations regarding damage to forests and other national resources, which usually involve only mild administrative punishments.

Two months ago Ministry of Industry and Information Technology Minister Miao Wei promised to "strike hard" against the illegal mining, exporting and smuggling of rare earth elements to impose discipline on an increasingly "strategic" sector of China’s economy. Addressing an industry meeting Miao said, "Since the turn of the new century, along with intensifying global competition in new technologies, the strategic position of rare earths has become increasingly important, and they are receiving more and more attention from every country."

Shorn of bombast, the essence of Miao’s statement is that not only is Beijing not getting its “cut” of the profits from the illegal mining, but the wildcatters are wreaking environmental damage.

But Mongolians are missing out on the profits from the exploitation of another of the province’s energy resources as well. Since 2006 coal production in Inner Mongolia has increased 300 percent, reaching 782 million tons in 2010, making it the leading producer of China's main energy source, according to government statistics. In mid-May clashes left two Mongols dead when coal mining triggered protests in several cities and towns, which became the largest demonstrations in the Inner Mongolia region in the past two decades.

The government responded with force, swamping the streets with police, disrupting Internet service and confining high school and university students to their campuses.

Quite aside from the plundering of the region’s resources, ethnic Mongols have another complaint. As a result of Han immigration Mongols today make up less than 20 percent of the region's population of 24 million and many speak little or no Mongolian as a result of being educated in Chinese. The Mongols are slowly drowning in a relentless slow flood of ethnic Chinese Han immigrants, who monopolize many of the best jobs.

So again, is it any wonder that illegal mining is on the rise?

The sad tale of Inner Mongolia perfectly encapsulates the schizophrenic contradictions in China’s headlong rush to become a leading industrial capitalist state, as virtually all significant economic activity remains under the thumb of the country’s Communist party bureaucracy. The gap between the country’s “haves” and have-nots” widens daily, with uncertain implications for the future.

Another country might laud the wildcatters’ initiative and license them, but somehow, that seems a rather unlikely approach from Beijing, where the ‘strike hard” mindset seems to be the favored response. Two months ago China announced that it would create a state-owned RRE monopoly in Inner Mongolia.

China’s current leadership seems to have drifted away from Chairman Mao’s philosophy while embracing that of the U.S. robber barons of the Gilded Era. As regards China’s RRE policy, China now seems to be channelling the spirit of J.D. Rockefeller, who said, "Competition is a sin."

Mao must be twirling in his mausoleum.

By. John C.K. Daly of OilPrice.com




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