Overview on China's Rare Earth Industry Restructuring and Regulation Reforms

Full text

May, 2017 Journal of Resources and Ecology Vol. 8 No.3
Received: 2017-02-13 Accepted: 2017-04-20
Foundation: National Key Research and Development Program of China (2016YFA0602802); National Natural Sciences Foundation of China (71633006);
Project granted from National Geological Library of China (cg12016067A1)
*Corresponding author: WU Na, E-mail: wun.16b@igsnrr.ac.cn.
Citation: SHEN Lei, WU Na, ZHONG Shuai, et al. 2017. Overview on China’s Rare Earth Industry Restructuring and Regulation Reforms, Journal of
R
esources and Ecology, 8(3): 213–222.
J. Resour. Ecol. 2017 8(3) 213-222
DOI: 10.5814/j.issn.1674-764x.2017.03.001
www.jorae.cn
Overview on China’s Rare Earth Industry Restructuring and
Regulation Reforms
SHEN Lei1,2, WU Na1,2,*, ZHONG Shuai1, GAO Li3,4
1. Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences, Beijing 100101, China;
2. University of Chinese Academy of Sciences, Beijing 100049, China;
3. School of Economics and Management, China University of Geosciences, Wuhan 430074, China;
4. Institute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, China
Abstract: Rare earth elements (REEs) that are key to new technologies and green innovations are critical to life in
modern societies. China continues to dominate the global REEs market despite several international trade disputes
and market fluctuations. Pressured by an increasingly difficult situation, the Chinese government has been carrying
out industry restructuring and has introduced regulatory reforms in recent years to promote the healthy develop-
ment of the rare earth industry. This paper reviews the literature on the development of the rare earth industry and
analyzes the reform policies, combining this with an analysis of relevant macroeconomic data. It discusses the
current status of China's rare earth industry, the progress of industrial restructuring and the main problems the rare
earth industry faces. The paper discusses the evolution of rare earth policies from that of "open production and
open supply" to that of "limiting low quality development but encouraging export of high quality rare earths" and
then to "integrating rare earth resources trade". Six key policies, including those for export quotas, export duties,
environmental laws, resource utilization technology, industry consolidation and stockpiling, are discussed in detail.
Policy suggestions based on this discussion are put forward concerning the treatment of small rare earth mines in
China: firstly, robust efforts to prevent illegal mining must always be maintained; secondly, it is certain that the
formation of large-scale conglomerates should be accelerated in the near future; thirdly, the management of key
sections should be reinforced; fourthly, support for technological innovation and the development of the applications
industry should continue; fifthly, specific rare earths laws and regulations should be greatly improved. The paper
also puts forward some suggestions on revisions to improve mineral resources law: firstly, China must increase the
market access threshold and suppress low-end excess production capacity; secondly, the new environmental
protection verification must be developed for all rare earth enterprises; thirdly, minimum required indicators for the
development and utilization of rare earths resources must be implemented in China. These recommendations can
serve as a reference for efforts to promote the sustainable development of China's rare earth industry.
Key words: rare earth policy; industry restructuring; small-scale mining; regulation; China
1 Introduction
The rare earth elements (REEs) industry is very small com-
pared to other industries, but it is strategically important.
Due to their unusual physical and chemical properties, such
as unique magnetic and optical properties, REEs have di-
verse applications in modern industry (Bruno, 2012; Grasso,
2013). They are critical inputs for the manufacture of many
high-tech products and for technologies key to systems for
clean energy, national security, and for military and defense

214 Journal of Resources and Ecology Vol. 8 No. 3, 2017
applications (Yang et al., 2013). The essential functions of
REEs in a range of high-tech products make them strategic
items of national relevance.
REEs, of which there are 17 different chemical elements,
are divided into light REEs or LREEs (lanthanum, cerium,
praseodymium, neodymium, promethium and samarium, with
atomic nos. 57–62) and heavy REEs or HREEs (europium,
gadolinium, terbium, dysprosium, holmium, erbium, thuli-
um, ytterbium, lutetium, with atomic nos. 63–71) (Connelly,
2005). REEs have higher concentrations in a deposit than
copper or iron, which are distributed in low concentrations
(Liu and Bongaerts, 2014). Rare earths in fact are not very
rare, but it is very difficult to find deposits that can be ex-
ploited economically and, because REEs have very similar
properties, that allow for simple methods of extraction and
separation. Rare earth minerals are quite abundant in the
earth’s crust and widely distributed in thirty-four countries.
According to the data from the US Geological Survey, glob-
al rare earth oxide (REO) reserves stood at about 130 mil-
lion tons in 2014 (USGS, 2015).
China is the world’s largest producer and exporter of rare
earths products, dominating the global market with an 85 to
95 percent share each year since the late 1990s (Du and
Graedel, 2013). China exports its REEs largely to Japan, the
United States and the European Union. China has a near
monopoly on the production of REE minerals, concentrates
and metals (Levkowitz and Beauchamp-Mustafaga, 2010).
Nevertheless, citing a need to conserve the environment and
to protect exhaustible natural resources, China has been
struggling to limit REE exports through quotas, licenses and
taxes (Kingsnorth, 2010). In 2014, China’s rare earth pro-
duction was 93800 tons and export quotas were reduced to
31000 tons, especially for dysprosium, terbium, thulium,
lutetium, yttrium (USGS, 2015). This restrictive policy re-
sulted in friction with the West and Japan (Eddy, 2012;
Massari and Ruberti, 2013; Vateva, 2012). The United
States, the European Union and Japan lodged a complaint
with the World Trade Organization (WTO) in 2012, arguing
that China’s restrictions on REEs exports were designed to
provide China’s domestic downstream industries with pro-
tected access to the minerals (Weslosky 2012; Morrison and
Tang, 2012). In March 2014, the WTO ruled in favour of the
complainants, asking China to remove its export tariffs and
quotas or face repercussions (WTO, 2014).
Because of the important role China’s rare earths play in
the world market, the number of studies focused on China’s
regulatory framework for rare earths has increased. China
has failed in the past to attain pricing power and large prof-
its in spite of its monopoly position (Zhang et al., 2015),
and has even suffered from the “China discount” problem
(Liao and Liu, 2011). These factors created the rare earths
policy conflicts between China and the rest of the world
(ROW) (Hayes-Labruto et al., 2013). From the perspective
of the ROW, China’s control of the REEs market was one of
“resources nationalism” and the regulatory policies that re-
sulted did not comply with WTO rules (Hu, 2012). Political
purposes, “unfair competitive advantage”, and “an attempt
to capture more rents along the value chain” were the three
key worries of the ROW (Hayes-Labruto et al., 2013). Act-
ually, the Chinese perspective was focused on domestic de-
mand, environmental worries, social upheavals, illegal min-
ing, smuggling, and abiding by international trade regula-
tions (Hao and Liu, 2011). The major drivers behind China’s
rare earths policies were concerns about domestic resources
conservation and environmental protection (Wübbeke,
2013). Actually, the export quotas and export tariffs on rare
earth industry were not effective for Chinese rare earth
high-tech industries (Tukker, 2014). If China cut off rare
earths exports, there would be a shortage in the global
high-tech markets and prices would rise sharply (Massari
and Ruberti, 2013). It is an indisputable fact that a diversi-
fication of suppliers was needed (Stegen, 2015), but the es-
tablishment of alternative REE supply chains was truly a
challenging and delicate task (Machacek and Fold, 2014).
Global availability of rare earths will increase, following the
opening of new mines in different parts of the world
(Massari and Ruberti, 2013). Therefore, if China were to
abolish rare earths export quotas and export tariffs, the con-
trol of rare earth exports would be greatly weakened, and
the regulation of rare earths in the future could prioritize
domestic exploitation and production (Wang, 2011), with
resource-related and environmental taxes being the key fac-
tor affecting the market supply of rare earths (Han et al., 2015).
This article aims to provide an overview of the rare earth
industry adjustment in China, focusing on the current status
of industry restructuring and the consolidation of small-
scale mines, the historical evolution of the policy frame-
work and the potential for changes to current policy. The
paper will include a discussion of international markets, the
availability of these strategic resources, the possibilities for
substitution and recycling, and environmental problems.
Finally, some policy recommendations for the future devel-
opment of China’s rare earths industry are provided.
2 China’s rare earth industry
2.1 Mining, production and exports
There is considerable uncertainty about the quality and lo-
cation of rare earth reserves. According to a US source,
China accounts for 36.5% of global rare earth reserves, al-
though China contests this and claims it accounts for only
23% (XINHUAnet, 2012). Most of China’s rare earth re-
serves are located in the four regions: Inner Mongolia, Si-
chuan, and Shandong provinces, and seven provinces that
share borders in southern China (Jiangxi, Fujian, Guang-
dong, Guangxi, Hubei, Hunan and Yunnan). The deposits in
Inner Mongolia, and Sichuan contain mainly LREEs. Inner
Mongolia’s Baiyun Obo is the biggest mining reserve in
China, accounting for 83.7% of total REEs reserves (Yang

SHEN Lei, et al.: Overview on China’s Rare Earth Industry Restructuring and Regulation Reforms 215
et al., 2013). In southern China, particularly in Jiangxi and
Guangdong, deposits in ion-adsorption-type clays contain
high concentrations of the precious and expensive HREEs
(Wübbeke, 2013).
Most rare earth enterprises in China are located in the
areas where there are rare earth mines. Three major bases
include:
a. The northern production base for rare earths, domi-
nated by Baotou mixed rare earths, with a separation capac-
ity of 80000 tons;
b. The medium and heavy rare earth production base in
Jiangxi and the other six southern provinces, dominated by
ion-type rare earths, with a separation capacity of 60000
tons;
c. The production base for bastnaesite in Mianning, Si-
chuan, with a separation capacity of 30000 tons.
There are two production systems for rare earths: one is
the northern light rare earths process, dominated by prod-
ucts like rare earth concentrates, rare earth alloys, mixed
rare earth compounds, enrichments and metals, various sin-
gle rare earth compounds, rare earth polishing powders, and
some value-added products like permanent magnetic mate-
rials and hydrogen storage alloys. The other process for me-
dium and heavy rare earths is found in the south and pro-
duces various high-purity single rare earth compounds, en-
richments, mixed metals and alloys.
Rare earths smelting and separating enterprises in Inner
Mongolia area are mainly concentrated in the Baotou area
(Liu and Xie, 2008). There are some 60 rare earth enter-
prises at present, including 20 key enterprises. Baotou has
two enterprises with annual processing capacity of more
than 10000 tons of rare earth concentrates, five backbone
enterprises with more than 5000 tons of capacity, and 12
enterprises with 2000–3500 tons of capacity; the remaining
enterprises have less than 2000 tons of processing capacity.
The Inner Mongolia Rare Earth High-tech Company is the
largest Chinese enterprise for rare earth mineral production
and rare earth smelting and processing.
Of the 104 mining rights certificates in the southern
provinces and regions of China in 2013, 88 were owned by
Jiangxi Ganzhou Rare Earth Mining Ltd, an enterprise with
20 rare earths separation firms and annual capacity of 60000
tons (Wu, 2011). This company, which is located in Gan-
zhou city and produces mostly medium and heavy rare
earths, is responsible for the integrated exploitation, produc-
tion operations and management of rare earths, and for all
investment and foreign cooperation. The China Minmetals
Corporation has established a China Minmetals Rare Earth
Co., Ltd. in Jiangxi Province with an investment of CNY 2
billion over 5 years. The company is aiming at annual sepa-
rating capacity of 13500 tons and is looking to become the
world's largest integrated enterprise group for the mining,
processing, and application of rare earths. In Sichuan Prov-
ince, there are 28 rare earths enterprises engaged in mining,
smelting and separating. Only two or three enterprises can
be considered large scale; the remainder are small and re-
sponsible for considerable environmental pollution and
damage to resources.
At present, there are more than 500 legally registered en-
terprises in China engaged in rare earth mining and produc-
tion, of which 123 have mining permits. A conservative es-
timate shows that capacity for rare earth separation has
reached 170000 tons, but actual capacity may be over
200000 tons. The Ministry of Commerce of the People’s
Republic of China (MOC) declared that China has been
satisfying more than 90% of global demand for decades
(MOC, 2014a). REEs exports increased from 150 tons in
1978 to a peak of 57400 tons in 2007, and then decreased to
16800 tons in 2011, with 56% of exports going to Japan,
14% to the USA, and 10% to France. To date, REO has ac-
counted for more than half of rare earth exports, while rare
earth salts, and rare earth metals only made up small parts.
Global rare earth demand reached 210000 tons in 2015,
while Chinese domestic demand was 138000 tons; by 2020,
China’s gross domestic consumption is expected to reach
190000 tons, of which 130000 tons will go to high-tech ap-
plications, accounting for 68% of the world's total consump-
tion.
In 2004, China began implementing a series of restrictive
policies to control rare earth exports. The sharpest decrease
in export quotas occurred in 2010, when quotas decreased
by nearly 40% compared to 2009. This decrease of rare ear-
th exports led to nervous trade relationships between China
and importing countries. The main importing countries
complained that China’s policies violated free trade rules
and artificially inflated global prices. The MOC announced
that China would abolish export quotas beginning in 2015
(MOC, 2014b). On January 21, 2015, the MOC reported
that China’s rare earth export tariff would be abolished on
May 2, 2015 (XINHUAnet, 2015).
2.2 Progress restructuring
In 2013, as a result of restructuring, China set up a total
control quota of 93800 tons (REO) for rare earth mining and
planned to use 90400 tons for smelting and separation
products. Actual annual production output was only 80400
tons and 83300 tons went to smelting and separation prod-
ucts, accounting for 85.7% and 92.1% in the planned targets,
respectively. Both Jiangxi Province and the China Minmet-
als Corporation reduced production partly due to environ-
mental transformation and price suppression. Also in 2013,
China set an export quota for rare earths of 24000 tons
(equivalent to the physical volume of 31000 tons), but the
actual annual export volume was only 22900 tons of product,
accounting for an increase of 36.3% and having a value of
US $603 million. According to the official statistics for
2013, China’s rare earth industry had operating income of
CNY 76.9 billion showing growth of 7.9%, and realized a

216 Journal of Resources and Ecology Vol. 8 No. 3, 2017
profit of CNY 7.74 billion, a decrease of 28.1%, which was
the result of lower prices. New rare earth materials have
become the main driving force in the Chinese rare earth
industry.
At present, Inner Mongolia, Guangdong, Jiangxi, Fujian
and other provinces have basically completed integration of
the mining, smelting and separating of rare earths, and
formed large scale enterprise groups for rare earths. Giant
state-owned enterprises like China Minmetals, China Alu-
minium Corp (also known as Chalco) and others have inten-
sified structural adjustments and enhanced their industrial
scale and comprehensive strength.
In an environment of special support and guidance for
rare earth industry adjustments and upgrades, China has
constructed six comprehensive public technology service
platforms, and is engaged in a number of high-end materials
and devices projects. The quality and performance of the
majority of rare earth raw materials have reached interna-
tional levels and the added value of the products has in-
creased significantly. The expectation is that within a few
years asset reorganization and mergers will result in less
than 20 rare earth enterprises (Wang et al., 2015).
2.3 Major issues
Since March 2012, the trade dispute concerning China’s
exports of raw materials has placed rare earth resource
products in the teeth of a storm. Small-scale mining and cut-
throat price competition have brought difficulties to the do-
mestic rare earth sector over the years (XinhuaNew, 2014).
Still, there has been some of the root reasons and self-deve-
lopment problems of the rare earth industry in China, inc-
luding especially a long-term downturn in prices that began
in the year 2007, extensive mining, serious environmental
pollution, excess processing capacity, and a lack of
self-development ability (See Fig. 1).
Moreover, some extremely urgent issues are at hand.
First, illegal, unplanned production occurs frequently, re-
sulting in chains of black interests involving mining, pro-
duction, circulation, and smuggling. This has seriously dis-
rupted market order and led to a substantial decline in the
price of rare earth products. Second, excess rare earth smelting
Fig.1 Annual exports and changes in average price of rare
earths in China from 1979 to 2010
Data sources: USGS (2001–2013); CSRE Yearbook (2007–2014)
and separation capacity is a serious problem; and third, pre-
venting the illegal production and circulation of rare earths
is made more difficult due to deficiencies in the legal and
regulatory framework.
Irrational exploitation of rare earth resources has caused
serious damage to local ecologies. Here we cite two of the
numerous examples. In Baotou, Inner Mongolia, water pol-
lution due to illegal mining threatens the water quality and
safety of downstream sections of the Yellow River, while in
Ganzhou, Jiangxi, excessive mining and extraction of rare
earths in Ganzhou have severely damaged the Dongjiang
River where it is estimated that ecological restoration will
cost at least CNY 38 billion. It is estimated that each kilo-
gram of rare earths produced in China has an environmental
cost of US $5.60, whereas the sale price of rare earths was
only US $5.50 per kg from 2002 to 2005. Even though rare
earth prices have increased 1.5 times from 2005 to 2007,
this increase is far less than price increases for gold, copper
and iron ore during the same period. As a result, the gap
between the price and the actual value of rare earths is great.
Disorderly, illegal mining is conducted repeatedly by
small-scale mines. In 2013, the Ministry of Industry and
Information Technology (MIIT) joined with the Ministry of
Public Security (MPS), the Ministry of Land and Resources
(MLR), the Ministry of Environmental Protection (MEP)
and other seven agencies to launch a special action aimed to
curtailing illegal rare earths activities. According to publicly
available information, 46 illegal pilfering cases were inves-
tigated, 126 illegal production enterprises were ordered to
stop production and be rectified, 161 enterprises business
licenses of rare earths enterprises were revoked, and more
than 19000 tons of rare earth ore and illegal products were
seized.
The smuggling of rare earth products is rampant. In 2011,
the volume of rare earth smuggling reached 22320 tons, far
more than the volume exported by legal channels. In 2013,
there were five cases in which Chinese customs seized a
total of 2330 tons of smuggled rare earths products valued at
CNY 52.5 million. As part of its effort to protect resources
and the environment, the Chinese government has imposed
export duties and management measures for quotas on rare
earths and related products. Nevertheless, these policies
were identified by WTO as not conforming to WTO princi-
ples that China has committed to. As a result, the Chinese
government has to regulate the industry at the source where
rare earths are mined. Today, rectification work in some
areas of provinces (or regions) has achieved remarkable
results. Rare earth mining areas in Baotou have imple-
mented closed fence management. Advanced video moni-
toring systems have been installed in the major mining areas
of Ganzhou and Mianning. In Ganzhou, a number of viola-
tions of laws and regulations involving rare earths have
been investigated and dealt with. As rectification activities
have intensified, market order in China’s rare earths indus-

SHEN Lei, et al.: Overview on China’s Rare Earth Industry Restructuring and Regulation Reforms 217
try has improved markedly.
The benefit game between rare earths stakeholders was
obvious. A new concept for establishing north and south rare
earth groups was being considered as early as 2002 (Hayes-
Labruto et al., 2013). It was only in 2010, however, that the
MIIT and National Development and Reform Commission
(NDRC) put plans on the policy agenda to integrate the rare
earths industry, choosing several state- owned and backbone
enterprises to be the vehicles for integrating all rare earth
resources. After several years of efforts, there is a consensus
that it is very difficult to move forward with the integration
process for the rare earth industry. The key reason lies in the
games played many stakeholders, including the benefit
games between the central and local governments, between
regions, and between some main enterprises of rare earths as
well.
3 Rare earth policy evolution
3.1 Historical evolution of rare earth policy
China’s rare earths production started in 1957 at the Bayan
Obo iron mine in Inner Mongolia (Tse, 2011). Production
was no more than 1000 tons for the next 20 years. Since the
reform and opening policies were introduced in 1978,
China’s rare earth industry has experienced rapid develop-
ment. In 1986, China surpassed the US as the world largest
REEs producer with a total REO output of 11860 tons. Cur-
rently, China can produce over 400 varieties of rare earth
products with more than 1000 specifications and has total
production of 95000 tons (Fig. 2), even though its share of
global production decreased to 86% in 2014.
The Chinese government has implemented several poli-
cies to manage rare earth production and to control exports.
Management policies for rare earth production have been
readjusted several times since 1970, beginning with policies
that supported free development and then moving to policies
that restricted and controlled development. China's rare
earth industry policy has also gradually changed from one of
local strengthening to one of comprehensive management.
Fig.2 Global rare earths mining production (1979–2015)
Data sources: USGS (2015)
Policy developments can be roughly divided into three stages:
(1) The first stage from 1978 to 1998 was characterized
by a policy of “open production and open supply”. Because
global demand for rare earths was enormous, as was the
potential for profits, China's production and export of rare
earths expanded rapidly during this stage. Production in-
creased by an average of 40% per year between 1978 and
1989. Chinese rare earths entered the international market in
the 1980s. During the 1990s, China’s rare earth production
increased sharply and, by the mid-1990s, China had sur-
passed the USA as the world largest producer of REEs.
During this time, China treated rare earths as a general re-
source and a tool to earn foreign exchange from export sales.
Export tax rebates on rare earth products acted as “rare
earths for foreign currency”. In the early 1980s, China’s
export volume of rare earths was only 20 tons, but in 2006 it
reached its highest level of 53313 tons, accounting for 97%
of the world total (see Fig. 1).
(2) The second stage from 1998 to 2005 saw a policy of
“limiting low quality but encouraging high quality rare
earths exports” aimed at restricting the export of raw mate-
rials and roughly processed rare earths while encouraging
the export of deep processed rare earths products. During
this stage, policies to limit mining were adopted, including
rare earths export quota licenses, export quota controls, the
reduction and gradual elimination of export tax rebates, and
mining quotas. At the same time, the Chinese government
developed a plan to solve the problem of overcapacity in
rare earth industry and to address the chronic difficulties
caused by a continuous price slump. But in fact, total export
quotas in each year of this stage exceeded world market
demand. It can be seen that before 2005 the Chinese trade
policy considered rare earths to be general export products,
the key role of which was to earn foreign exchange.
(3) The third stage, which began in 2005 and continues
today, has implemented a policy of “integrating the man-
agement of rare earth with new trading”. Since 2006, China
has put into place a series of rigorous policies to control the
rare earth industry. These policies include controlling the
total quantity of production, continuously raising the export
tariffs on rare earth products, promulgating the “rare earth
industry development policy” (China Daily, 2012) and “the
long-term development plan for the rare earth industry”,
issuing “rare earth industrial pollutants emission standards
(GB 26451-2011)” and “rare earth industry access condi-
tions”, establishing a system of strategic reserves for rare
earths, and strictly controlling all approvals of rare earths
projects. At the same time, the ministries of the State Coun-
cil have carried out various special actions to crack down on
smuggling of rare earths, to ensure the orderly development
of the rare earths industry, and to coordinate actions focused
on rare earth mining, production, environmental protection
and anti-smuggling operations. Comprehensive plans are in
place to maintain the sustainable development of rare earth

218 Journal of Resources and Ecology Vol. 8 No. 3, 2017
industry and protect the environment in China.
To address existing problems and because of the rapid
development of the rare earth industry in China, the Chinese
government has implemented a targeted control policy. This
control policy is divided into phases. It should also be noted
that China started to decrease the volume of rare earth ex-
ports in 2006, citing as reasons increased domestic demand
and concerns about environmental degradation. As a result
of these actions, critical supply uncertainties were created
among key industries worldwide and significant price in-
creases were noted beginning in 2009 (Morrison and Tang,
2012).
3.2 Key components of rare earth policy
Several policy measures, which have played critical roles
during a given period, can be identified:
(1) Export quotas. In 2009, China’s rare earth export
quotas included: 20 general trade enterprises with a first
batch export quota of 15043 tons and a second batch quota
of 16267 tons; 11 foreign-invested enterprises with a first
batch export quota of 6685.1 tons and a second batch quota
of 10160 tons. In 2013 and 2014, rare earth export quotas
remained almost the same as they were in 2010 but were
significantly less than those in 2009.
Since 2012, China has been implementing an allocation
system for the rare earth export quota; however, the MOC
divided export quotas into two groups for the first time, with
classified management for LREEs and HREEs. In 2012 the
first batch was 10546 tons, including 9095 tons of LREEs
and 1451 tons of HREEs. At the same time, China began to
implement a strict environmental verification system target-
ing rare earth export enterprises. For example, rare earth
export enterprises that did not pass an environmental pro-
tection audit given by the MEP were not allocated any quota.
On 26 December, 2011, the MOC published the list of rare
earth export enterprises in 2012 and issued the first batch of
rare earth export quotas. The 11 enterprises that passed the
environmental audit were given a quota of 10546 tons, but
the rest of the quota of 14358 tons was reserved for enter-
prises that had not passed the environmental audit. If these
enterprises had passed the audit in July, 2012, they were
going to be allocated a quota of 14358 tons. On 16 August,
2012, six enterprises obtained a quota of 9770 tons for a
second batch of rare earth exports, including 8537 tons of
LREEs and 1233 tons of HREEs.
As shown in Table 1, the export quota amount for 2010
was only about 60% of the 2009 quota, a significant de-
crease. The rare earth export quotas in the years 2010, 2011
and 2012 remained relatively stable. In the years 2013 and
2014, the total quota remained almost the same, but some
small changes in the structure occurred: the 2013 quota of
3617 tons for HREEs decreased by 257 tons in 2014, and
the 2013 LREEs quota of 27384 tons increased by 262 tons.
Table 1 China’s export quotas for REEs from 2009 to 2014
(tons)
Items 2009 2010 2011 2012 2013 2014
First Batch 21728 22283 14446 21226 15499 15110
Second Batch 26427 7976 15738 9770 15502 15500
Supplement 1990
Total 50145 30259 30184 30996 31001 30610
(2) Export duties. China began to implement an export
tax rebate policy on rare earth products in 1985. As of Janu-
ary 1, 2004, the export tax rebate for rare earth metals had
been adjusted from 13% to zero and the tax rebate rate for
inorganic or organic compounds from the rare earth metals
scandium, yttrium, and their mixtures had also been chan-
ged from 17% or 13% to 5%. After May 1, 2005, export tax
rebates on rare earth metals, rare earth oxides, rare earth
salts and other products were eliminated altogether. In 2007,
the duty rates were set at 10% and applied to a few products.
The export duties levied on rare earth products since June 1,
2007, have aimed to control the type and quantity of rare
earths being shipped outside of China. Over the years, duty
rates have increased and now range between 15% and 25%.
An example of these elevated rates can be found in China’s
2011 export duty schedule that imposes a 25% export duty
on ferroalloys that are more than 10% REEs.
(3) Environmental laws. Over time, China has steadily
improved its control of high polluting and resource-based
products with an eye to protecting the environment. As of
2015, in principle at least, no new rare earth smelting or
separation projects in China will be approved and rare earth
smelting or separation capabilities will not increase. More
rigorous requirements will be imposed on the scale of pro-
duction and the equipment enterprises use for rare earth
smelting or separation, and strict standards will be imple-
mented for environmental protection, production technology,
resources and energy consumption. Existing enterprises are
required to focus more on research and development, tech-
nological transformation, and equipment investments in
order to improve product quality and implement cleaner
production.
(4) Technology for resources. China is encouraging the
use of rare earth products in high-tech fields, especially in
the fields of information technology, environmental protec-
tion and the development of circular economies. This new
policy initiative fits remarkably well with China’s goal of
moving the rare earth business to higher value-added, more
technically advanced sectors. Private and small-scale firms,
however, have difficulties taking advantage of this initiative.
(5) Industry consolidation. The Chinese government has
made it a priority to close down small-scale rare earth op-
erations and consolidate larger ones. The policy goal stated
in “Plans for Developing the Rare Earth Industry
2009-2015” called for the establishment of three large rare

SHEN Lei, et al.: Overview on China’s Rare Earth Industry Restructuring and Regulation Reforms 219
earth production areas, one in the north (Inner Mongolia and
Shandong), one in the south (Fujian, Guangdong, Guangxi,
Hunan, and Jiangxi) and one in the west (Sichuan), and two
production systems, one located in the north, the other in the
south. Another goal is to reduce the number of enterprises
engaged in mining and processing rare earths to around 20
through mergers, phasing out small-scale, unlicensed mines
and reversing the trend towards lower export prices of pre-
cious minerals.
(6) Stockpiling. There is a consensus that China should
set up a stockpiling system for rare earths and thorium (for
energy) and support leading domestic producers like
Baogang, Minmetals, and Jiangxi Copper in implementing
such a system (Hurst, 2010). Similarly, China should build a
national strategic base for rare earth resources in northern
China. The plan is to store all of the REEs that are exca-
vated but not used in a given year in order to maintain price
levels. As of 2008, a new rare earth industry base was being
constructed in an effort to allow more efficient regulation of
rare earth pricing and to guarantee future supplies.
3.3 Implications of small-scale rare earth element
mining
The current policy adjustment of the rare earth industry in
China is facing serious challenges with respect to the regu-
lation of small-scale rare earths mines. It is likely that
small-scale REEs mining will continue to have a significant
negative impact.
(1) Pressure against illegal mining will be maintained.
China is strengthening supervision as the MIIT works
jointly with public security, land, environmental protection,
customs, taxation, safety supervision and other agencies to
increase inspections in problem areas. A regional linkage
mechanism involving rapid communication, coordination
and unified actions was established to help control the ille-
gal production of LREEs and HREEs. A special rare earth
invoice for data sharing, an optimized reporting system and
other means have been introduced to identify and solve a
number of major problems. Regional supervision responsi-
bility has also been implemented, with local governments
urged to investigate and deal with illegal behaviours. Other
measures have also been taken, including focusing more on
the supervision of local governments to prevent collusion
and illegal project approvals, and strengthening the man-
agement of public opinion by reporting positive cases and
exposing negative cases.
(2) The formation of large-scale conglomerates will be
accelerated in the future.
The current industry pattern of mergers and acquisitions
based on the six large rare earth conglomerates, including
Inner Mongolia Baotou Steel Rare Earth Hi-Tech, Xiamen
Tungsten Co. Ltd, China Minmetals Corp., Aluminum Corp.
of China, Ganzhou Rare Earth Group Co. Ltd and China
National Nonferrous Metals Industry Guangzhou Corp.,
needs to be consolidated and expanded. This consolidation
will integrate domestic rare earth enterprises related to min-
ing, smelting and separating. It will force the closure of il-
legal enterprises, reduce the number of rare earth separating
enterprises, and resolve overcapacity problems. During this
process, rare earth industry restructuring must adhere to the
principles of government guided, corporate-led, multiple-
investment, market-oriented operations. Market mechanisms
must play a decisive role in the allocation of resources, and
all institutional obstacles need to be eliminated by the com-
prehensive application of economic, technical, legal and
administrative means. In this way an industry structure
based on large-scale rare earth conglomerates can be deve-
loped very soon.
(3) The management of key sections to be reinforced.
The Chinese government will promote management for
the comprehensive utilization of rare earth resources. Some
comprehensive rare earth utilization projects, such as waste
recycling, rescue recycling to overlaid mines, and so on,
should be included in the management of the plan to control
the total amount of production, with more attention paid to
the six conglomerates mentioned above. Moreover, illegal
rare earth activities should be severely punished. Manage-
ment of the LREEs and HREEs classifications will be fur-
ther implemented and the LREEs planning targets will be
improved, while harsher penalties to punish illegal explora-
tion and production will be put in place. Last but not least,
Chinese customs will be equipped with more rapid checkout
equipment to enhance its capacity to detect smuggling.
(4) Support for technological innovation and the devel-
opment of the application industry will continue.
Large enterprise groups and research institutes will be
encouraged to explore new rare earth materials, to develop
high value-added applications, and to promote the optimiza-
tion of the rare earth industry, under the policies relevant to
strategic emerging industries, to major national-level sci-
ence and technology projects, and the restructuring and up-
grading of the rare earth industry.
(5) Laws and regulations for rare earths will be greatly
improved.
In order to regulate enterprise production and operations,
the MIIT will join with relevant departments to revise inap-
propriate management measures and develop “Rare Metals
Management Regulations”.
3.4 The restructuring of regulations
The rare earth industry has undergone a series of reforms in
recent years.
(1) The rare earth export quotas seem to be failure.
On December 13, 2013, the MOC announced the first
batch of rare earth export quotas for 2014, setting 15110
tons as the total. Of this total, the quota for LREEs was set
at 13314 tons, and that of HREEs at 1796 tons. These amo-
unts represented a reduction of 249 tons for LREEs and 142

220 Journal of Resources and Ecology Vol. 8 No. 3, 2017
tons for HREEs, compared to the first batch of quotas in
2013. On December 11, 2013, the Ministry of Finance
(MOF) announced its plan for rare earths tariffs; tariff am-
ounts in 2014 remained the same as they had been in 2013.
The tax rate for rare metals export was 25%, but rates for
the export of REOs exports were 15% for LREEs and 25%
for HREEs. These export tariffs were consistent with the
levels in 2012 and 2013; the export tariffs for HREEs con-
tinued to be higher. Due to weak global demand for rare
earths, however, the rare earth export quotas have been in-
effective in recent years, with actual exports being less than
the amount allocated by quotas. The total volume of actual
exports in 2014 did not change much from that in 2013.
(2) The formation of “one plus five” large-scale rare
earths conglomerates has encountered difficulties.
After the WTO ruling against China, with respect to the
differences in the export management of LREEs and HREEs
that has been implemented in recent years, the new export
policy is likely to be in accordance with the management
principle of “gradually opening up the gross volume of ex-
port, but managing LREEs and HREEs differently.” Fur-
thermore, because deposits of LREEs are more abundant
than those of HREEs, the former will be more volatile in the
future. The removal of export limits gives more bargaining
power to international buyers and there is likely to be cut-
throat competition between rare earth companies.
China's rare earth industry has suffered losses as a result
of the WTO ruling against China’s export controls. As a
result, China must deal with the pressure that results from
controlling the supply of rare earths by using market-orie-
nted means instead of administrative means. In order to give
play to market-oriented means, it is imperative to prohibit
private and small-scale mining, to increase the market
access threshold, to suppress excess low-end production
capacity, and to accelerate the formation of large rare earths
enterprise groups.
In early 2014, the MIIT and other relevant departments
met in Beijing to establish large-scale rare earth enterprise
groups. At that meeting, the six companies mentioned above
were designated to take the lead in merger and reorganiza-
tion activities. Several months later in August, 2014, the
MIIT agreed to form two large rare earth enterprise groups:
the Northern China Rare Earth (Group) Corporation fou-
nded by the Baogang Group and South China Rare Earth
Group founded by the Xiamen Tungsten Corporation. After
years of efforts to promote integration, China's rare earth
industry is changing from a structure that included large,
medium, and small enterprises to a structure dominated by
several large-scale conglomerates.
Additionally, the plan to control the total amount of rare
earths has also faced challenges. In March, 2014, the United
States, Japan and the European Union filed a WTO com-
plaint against China's rare earths export restrictions. Since
that time, the domestic rare earth industry has been in a
downturn. In July, 2014, the MIIT and the MOF jointly is-
sued "National Fund Management Regulations on the De-
velopment of the Internet of Things and the Rare Earth In-
dustry" to provide financial support for the regulation of
rare earths mining and high-end applications. Following
promulgation of this policy, the Chinese government pro-
vided one-time awards to the mining companies that passed
environmental audits. Rewards of CNY 1000 per ton for
rare earths mining, CNY 1500 per ton for smelting and sep-
arating, and CNY 500 per ton for rare earth metals smelting
were provided.
(3) A new environmental protection verification proce-
dure has been developed for all rare earth enterprises.
In order to implement “The opinion of the State Council
on promoting the sustainable and healthy development of
rare earth enterprises” (also called the No. 12 code in 2011）
and “The opinion of the State Council on strengthening en-
vironmental protection” (the No. 35 code in 2011), the MEP
began environmental inspections of rare earth enterprises in
2011. The Ministry stressed that approved enterprises listed
in the announcement should ensure the normal and stable
operation of pollution treatment facilities in accordance with
the requirements stipulated in environmental protection laws
and regulations. Enterprises not listed in the announcement
should formulate a scheme for improving their environmen-
tal protection performance and take corrective actions as
soon as possible. In the future, the ministry will continue its
inspection work and publish a list of certificated enterprises.
Furthermore, the ministry will review and inspect on both a
scheduled and unscheduled basis those enterprises that re-
ceived certification earlier. If an enterprise no longer meets
the requirements, its certification will be revoked and its
names will be announced to the public.
(4) China has implemented minimum indicators required
for the development and utilization of rare earths resources.
On December 30, 2013, the MLR formulated a trial
scheme in which all exploitation and utilization of mineral
resources including rare earths must reach the minimum
requirement of “three rates”. The MLR stressed that the
purpose of this scheme was to strengthen the supervision
and management of mineral resources and to promote sav-
ings and comprehensive utilization of mineral resources. In
addition, this scheme was implemented on the basis of “The
Mineral Resources Law of the People's Republic of China”.
The “three rates” are the mining recovery rate, the ore
dressing recovery rate and comprehensive utilization rate,
all of which form the primary index to evaluate the effects
generated by the utilization of mineral resources. We list the
minimum indicators as follows:
a. Mining recovery rate
For different types of rare earth mining enterprises that
adopt different mining methods, their mining recovery rate
should reach the following indicators (Table 2).

SHEN Lei, et al.: Overview on China’s Rare Earth Industry Restructuring and Regulation Reforms 221
Table 2 Indicators of recovery rates of rare earth mining
Type Mining method Ore-body thickness(m) Mining recovery rate (%)
the rock ore type opencast thin ore body (＜5) 94*
the ionic rare type
Medium thickness ore body (5≤H≤15) 95*
thick ore body (H ≥ 15) 96*
underground 90
heap leaching 87 (leaching phase) or 70 (full phase)
In-situ leaching 84 (leaching phase) or 67 (full phase)
“*” Data source: “Modern Ming Handbook” (first version in May, 2011)
b. Ore dressing recovery rate
For rock ore types, and based on differences in difficulty
level of the optional performance the ores, the ore dressing
recovery rate should reach the following indicators: the rate
of easily optional ore is 85%, normally optional ore 75%,
and barely optional ore 65%.
For ionic type, the ore dressing recovery rate should not
be less than 90%.
c. Comprehensive utilization rate
For other paragenic ore with rock ore rare earths, the
comprehensive utilization rate should not be less than 60%;
For associated ore with rock ore rare earth, the compre-
hensive utilization rate should not be less than 30%;
For ionic rare earth ore, it should be evaluated by leach
liquor concentration of rare earth. When a heap or ore
blocks stop injecting liquid, the ionic concentration should
be less than 0.1g/L.
Other requirements of the scheme stipulate that existing
mines should meet the specifications within two years of the
publication of the scheme. Provincial departments of land
and resources management should urge unqualified enter-
prises to meet the specifications within the time limit. Those
that cannot meet the standard after rectification and reform
should not be allowed to pass the annual inspection.
Acknowledgments
This article was presented at the 7th Conference on Sustainable
Development in the Minerals Industry (SDIMI), held on July
12–15, 2015, at the University of British Columbia in Vancouver,
Canada. It is based primarily on the author’s report on “Responsi-
ble Sourcing of Rare Earth Elements in China” submitted as rec-
ommendations to Apple Inc. in 2014. The author would like to
thank Apple Inc. and the Information Research Centre of the Min-
istry of Land and Mineral Resources (MLR) of the People’s Re-
public of China for providing partial funding for the work under-
lying this study. This work is jointly supported by the Key Labor-
atory of Strategic Studies and the Key Laboratory of Carrying
Capacity Assessment for Resource and Environment, Ministry of
Land and Resources, China. Finally, special thanks go to Centre
for Social Responsibility in Mining of the Sustainable Minerals
Institute, the University of Queensland, Australia for their assis-
tance in the realizing this task.
References
Bruno A. 2012. National Security, Defence and the Case for a Reliable
Domestic Supply, REE World Report, San Francisco, CA. 1–3.
China Daily. 2012. Policies of China's rare earth industry. Available at
http://usa.chinadaily.com.cn/china/2012-06/21/content_15515783.htm.
Connelly N G. Nomenclature of inorganic chemistry: IUPAC recommenda-
tions 2005. Cambridge (UK): Royal Society of Chemistry press.
Du X, Graedel T E. 2013. Uncovering the end uses of the rare earth ele-
ments. Science of the Total Environment, 461-462(9): 781–784.
Eddy M. 2012. Germany and Kazakhstan Sign Rare Earths Agreement, The
New York Times. The New York Times, New York.
Grasso V B. 2013. Rare earth elements in national defense: background,
oversight issues, and options for Congress. Library of Congress Wash-
ington DC Congressional Research Service.
Han A, Ge J, Lei Y. 2015. An adjustment in regulation policies and its
effects on market supply: Game analysis for China’s rare earths. Re-
sources Policy, 46: 30–42.
Hao Y, Liu W. 2011. Rare earth minerals and commodity resource natio-
nalism. In: Herberg, M.E. (Ed.), Asia's Rising Energy and Resource Na-
tionalism: Implications for the United States, China, and the
Asia-Pacific Region. National Bureau of Asian Research, 15.
Hayes-Labruto L, Schillebeeckx S J, Workman M, et al. 2013. Contrasting
perspectives on China's rare earths policies: Reframing the debate
through a stakeholder lens. Energy Policy, 63: 55–68.
Hu D. 2012. China's governance of exhaustible natural resources in the
WTO era: Taking its REE governance as a Case. Energy Procedia, 16:
656–660.
Hurst C. 2010. China's Rare Earth Elements Industry: What Can the West
Learn? Institute for the Analysis of Global Security (IAGS). 03: 24–25.
Available at http://www.iags.org/rareearth0310hurst.pdf
Kingsnorth D. 2010. The challenges of meeting rare earths demand in 2015,
Presentation at the Technology and Rare Earth Metals Policy Confe-
rence, Washington, DC, March, 17–18.
Levkowitz L, Beauchamp-Mustafaga N. 2010. China’s rare earths industry
and its role in the international market. US-China Economic and Secu-
rity Review Commission Staff Backgrounder 3.
Liao Z F, Liu K J. 2011. Analysis of international pricing role of Chinese
rare earth. International Business, 3: 59–66. (in Chinese).
Liu J, Bongaerts J.C. 2014. Mine planning and equipment selection supply
chain of rare earth elements (REEs). In: Drebenstedt C., Singhal R.
(eds). Mine Planning and Equipment Selection. Springer, 1419–1426.
Liu Y, Xie L. 2008. The global rare earth consumption and prospects. Chi-
nese Rare Earths, 29(4): 98-101. (in Chinese).
Machacek E, Fold N. 2014. Alternative value chains for rare earths: The
Anglo-deposit developers. Resources Policy, 42: 53–64.
Massari S, Ruberti M. 2013. Rare earth elements as critical raw materials:
Focus on international markets and future strategies. Resources Policy,
38(1): 36–43.

222 Journal of Resources and Ecology Vol. 8 No. 3, 2017
Ministry of Commerce of the People’s Republic of China (MOC). 2014a.
China Voice: WTO rare earth ruling is unfair. Available
at:http://english.mofcom.gov.cn/article/newsrelease/counselorsoffice/we
sternasiaan- dafricareport/201404/20140400535439.shtml
Ministry of Commerce of the People’s Republic of China (MOC). 2014b.
Catalogue of Goods in the Export License Management in 2015. (in
Chinese). Available at: http://www.mofcom.gov.cn/article/b/e/201412/
20141200854859.shtml
Modern Ming Handbook, 2011.Beijing: Metallurgical Industry Press. (in
Chinese).
Morrison W M, Tang R. 2012. China's rare earth industry and export re-
gime: economic and trade implications for the United States. Congres-
sional Research Service, Library of Congress.
Stegen K S. 2015. Heavy rare earths, permanent magnets, and renewable
energies: An imminent crisis. Energy Policy, 79: 1–8.
The Chinese Society of Rare Earths (CSRE). 2007–2014. The Chinese
Society of Rare Earths Yearbook(2007–2014).Beijing: The Chinese So-
ciety of Rare Earths Press. (in Chinese).
Tse P-K. 2011. China's rare-earth industry. US Department of the Interior,
US Geological Survey Reston. Available at: https://pubs.usgs.gov/of/
2011/1042
Tukker A. 2014. Rare earth elements supply restrictions: Market failures,
not scarcity, hamper their current use in high-tech applications. Envi-
ronmental Science & Technology, 48: 9973–9974.
United States Geological Survey (USGS), (2001–2013). Mineral commod-
ity summaries. (2001–2013). Available at https://minerals.usgs.gov/
minerals/pubs/commodity/rare_earths/.
United States Geological Survey (USGS), 2015. Mineral commodity sum-
maries. 2015. Available at http://minerals.usgs.gov/minerals/pubs/com-
modity/rare_earths/mcs-2015-raree.pdf.
Vateva A. 2012. China’s Rare-Earth Elements Policy and its Implications
for Germany, Japan and the USA. (UfU-Papers) Unabhängiges Institut
für Umwelt-fragen eV, Berlin.
Wang J Z. 2011. China's Rare Earth Defense War. Beijing: China Econom-
ics Press. (in Chinese).
Wang X, Lei Y, Ge J, et al. 2015. Production forecast of China’s rare earths
based on the generalized Weng model and policy recommendations.
Resources Policy, 43(11): 11–18.
Weslosk T. 2012. Obama & Romney Discuss Rare Earths.
World Trade Organization (WTO). 2014. China-Measures relations to the
exportation of rare earths. Tungsten and Molybdenum.
Wu Z L. 2011. The Strongly Correlates with Three Rare Earth Compete by
Policy Actively Guide in the South. Available at http://finance.eastday.
com/Business/m2/ 20110615/u1a5943767.html.
Wübbeke J. 2013. Rare earth elements in China: Policies and narratives of
reinventing an industry. Resources Policy, 38(7): 384–394.
XINHUAnet. 2012. U.S. calculations of China's rare earths reserves inac-
curate: official.
XINHUAnet. 2015. Rare earth export tariffs will be cancelled until May
2nd of this year.
XinhuaNew. 2014. China must tackle rare earth industry chaos. Available at
http://www.chinadaily.com.cn/m/innermongolia/2014-08/12/content_18
295004.htm.
Yang X J, Lin A, Li X-L, et al. 2013. China's ion-adsorption rare earth
resources, mining consequences and preservation. Environmental De-
velopment, 8: 131–136.
Zhang L, Qing G, Zhang J, et al. 2015. Did China’s rare earth export poli-
cies work?—Empirical evidence from USA and Japan. Resources Poli-
cy, 43(12): 82–90.
中国稀土产业重组和规制改革研究综述
沈镭 1,2，武娜 1,2，钟帅 1，高丽 3,4
1. 中国科学院地理科学与资源研究所，北京 100101；
2. 中国科学院大学，北京 100049；
3. 中国地质大学经济管理学院，武汉 430074；
4. 中国科学院科技政策与管理科学研究所，北京 100190
摘 要：稀土元素（REEs）已经成为现代社会新技术和绿色创新应用不可缺少的重要原料。长期以来，中国在世界稀土市
场上占据着主导地位，但其仍然面临一系列的国际贸易争端和不断变化的市场环境挑战。面对各种严峻的形势，中国政府一直采
取各种产业重组和规制改革的措施，旨在促进稀土产业健康发展。本文系统整理和分析了稀土产业发展及其改革政策的相关文献，
结合相关宏观数据分析，探讨了中国稀土产业现状、产业重组的进展及稀土产业存在的主要问题，论述了稀土政策从“放开生产
和开放供应”到“限制低质量开发，鼓励高质量稀土出口”再到“整合稀土资源贸易”的演变历程，对出口配额、出口关税、环
境法、资源利用技术、行业整合、资源储备等六种关键政策进行了具体分析。在此基础上，提出了针对中国小型稀土矿治理的政
策建议，包括:继续保持打击稀土非法开采的高压势态、加快组建大型稀土企业集团、加强重点环节管理、支持技术创新和应用
产业发展、完善相关法律法规等。同时，也提出了完善矿产资源法修订的有关建议，包括:提高稀土行业准入门槛、抑制低端产
能过剩、严格稀土企业的环保核查、严格遵循“三率”最低指标要求，合理开发利用稀土资源。上述建议可为促进中国稀土行业
可持续性发展提供借鉴与参考。
关键词：稀土政策；产业重组；小矿；规制；中国