A recent indicator of China's new rare earths policy in this regard was the announcement of the setting up of a rare earth association comprising 155 members to streamline the sector's development. According to the state media, Xinhua, the association has been "formed to promote sustainable and sound development in the sector."
Among the stated objectives of this body, which reports directly to the Chinese Ministry of Industry and Technology; are to help work out a reasonable price mechanism, and to create a win-win situation for developers and consumers through better co-ordination. However, news of the formation of this body has been met with some trepidation by Western governments, who contend that this may be another attempt to tighten control over an already highly regulated economy.
At the same time, some analysts have alleged that Beijing has been trying to utilise its position as the world's biggest producer of rare earths to the benefit of its domestic manufacturers. According to an article published in The Economist, "Slashing their exports of rare earth metals ... is all about moving Chinese manufacturers up the supply chain, so they can sell valuable finished goods to the world rather than lowly raw materials." The allegation is that by limiting exports, Beijing is keeping prices low for domestic buyers, while international buyers are paying more.
In other words, these analysts claim that China may be trying to create a situation, which favours local producers for hi-tech products over foreign producers. At the same time, they have contended that by following this policy, Beijing is pressurising international manufacturers to move to China. One possible example of this could be the division of General Motors, which deals with miniaturised magnet research, which shut down its US operations, and moved its entire staff to China in 2006.
What has been the response to this decision of the Chinese government's by the international community? I already mentioned that the US, EU and Japan have moved a case against China with WTO. However, even these countries privately acknowledge that the case against China will not be an easy one, least of all because of the environmental concerns that China has cited to back its policy. At the same time, there has been a reinvigoration in the efforts towards rare earths exploration within the developed world, similar to the impact that the OPEC crisis of the 1970s had on the West. Mining activity in these countries stalled as China emerged as a global leader, selling at extremely low prices in the 1990s, and it is felt that it will take at least a few years to restart production, given the substantial barriers to entry. Some countries have also begun stockpiling rare earth resources.
As China transitions from a supplier of raw materials to a giant in the value added sector, it would be pertinent to study its trajectory and see how we can also move beyond traditional areas of our expertise, which are still dominated by cotton-based products. In particular, it would do us a lot of good to study China's example, and learn from both the measures taken to address environmental concerns, as well as the effect that this is having on local industries, by creating opportunities for foreign investment in the value added sector.
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