In a controversial move this Wednesday, China slightly increased this year’s quota for rare earths exports under controversial controls on the exotic minerals needed by manufacturers of mobile phones and other high-tech products.
According to China’s Commerce Ministry, the export quota for the second half of the year has been set at 9,770 tons. The quota for the first half of the year was 21,226. 2012’s total quota will be 30,996 tons, 3 percent bigger than that of 2011.
China controls thirty percent of the world’s rare earths deposits. It also produces more than 90 percent of the world’s supply of rare earths, which are transformed into mobile phone batteries, camera lenses, and other high-tech products.
In 2009, China attempted to build up a domestic processing industry to capture more of the profits that go to American, Japanese, and European companies by imposing export curbs on rare earths. Chinese officials were hoping that the move would persuade foreign manufacturers to shift production to China, which would allow local partners to share technologies with them.
However, China’s move accomplished the opposite. In March of the same year, the United States, the European Union, and Japan filed a complaint with World Trade Organization complain. The three plaintiffs accused China of violating its free-trade commitment. China countered that its controls were in line with WTO rules and cited a necessity to protect the environment.
China announced its quota on rare earths at one of the least opportune of times. Foreign governments are attempting to increase exports to reduce high unemployment caused by the recent recession. In particular, the United States and Europe are trying to sell more high-tech goods, which require a large supply of rare earths.
Before it made its announcement on Wednesday, the Chinese government also tightened controls on mining and smelting. According to state media, minimum production levels have already been set and 20 percent of China’s production capacity will be shut down.
China has also has restricted the number of companies that can export rare earths to other countries. Chinese producers are apparently being forced to consolidate into a several large companies that the government can more easily monitor and control.
According to trading partners, China’s export quotas and taxes are causing the prices of rare earths to skyrocket outside the country. This reportedly gives an unfair advantage to buyers in China itself, where prices remain fairly low.
Beijing is playing a risky game as it tries to balance its free-trade pledges with its ambitions to transform China from a low-tech producer into a high-tech creator.
Rare earths are minerals used to make high-tech goods. Camera lenses, hybrid cars, flat-screen TVs, mercury-vapor lights, mobile phones, and weaponry are just some of the many products that need exotic minerals for their advanced, compact technologies.
Other countries have their own deposits of rare earths. They closed down most of their mines, though, after lower-cost Chinese ores became available.
That may be about to change. Foreign producers have announced plans to start or reactivate mines in California, Canada, India, Russia, and other countries. After all, someone has to take up production slack caused by China’s recent rare earths quotas.
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