News

Regulations on Rare Earth Administration

31.07.2024

China holds a near monopoly on the global rare earth market. In 2022, the country produced 210,000 tons, accounting for 60% of the world’s rare earth production. Its reserves also amounted to 44 million tons, which represented 37.89% of the global total. China ranked first in both production and reserves in the world. Meanwhile, China is the only country in the world with the capability to produce all types of products across the entire rare earth industry chain.

However, China’s rare earth industry faces a lot of challenges. First, China only holds 23% of the world’s rare earth resources, but it is the largest supplier in the global market. Intense mining activities have resulted in the rapid depletion and exhaustion of mining areas. Second, China still lacks relevant technology and innovation capabilities to produce high-tech rare earth products. Therefore, domestic enterprises primarily export rare earth resources or lower-quality products at relatively low prices. This resource-intensive development model harms the sustainable development of rare earth industry. Third, rare earth mining has caused a lot of environmental and health problems. Producing just one ton of rare earth elements generates approximately 2,000 tons of toxic waste. The mining, refining, and separation processes consume substantial amounts of water and electricity. These processes also cause considerable damages to ecosystems, such as soil erosion and desertification.

In response, the Chinese government has placed a high priority on the protection and development of rare earth resources. For example, China has implemented a total quota control system for rare earth mining since 2006, and the resource tax on rare earths has been gradually increased. Despite the issuance of several administrative normative policy documents, the aforementioned challenges have not been comprehensively resolved, underscoring the need for more stringent enforcement measures and penalties for violations.

On June 22, 2024, Premier Li Qiang signed a decree, issuing the Regulations on Rare Earth Administration, which will come into effect on October 1, 2024. This is the first comprehensive regulation on rare earth source protection and management. The Regulations outline a clear division of responsibilities between central and local governments. Several key measures are introduced to strengthen the overall planning for the whole industry, promote technological innovation, facilitate green transition, and ensure safe production. Meanwhile, the Regulations also emphasize enhancing the supervision mechanism. Notably, this is the first time that penalties for illegal and non-compliant behaviors are set. For example, enterprises that violate total quota control regulations will face fines ranging from 5 to 10 times their illegal gains.

The regulations have aroused debate regarding the purpose of the Chinese government. Given China’s dominant role in the global rare earth market, the implementation of the regulations might influence global prices and supply chains. This argument, however, contrasts with previous criticisms of China’s overproduction, blaming the country for excessive exports which causes the decline in rare-earth prices. Meanwhile, this policy is viewed as a retaliatory trade measure. For example, when the EU launched the anti-subsidy probe into electric vehicles imports from China last year, some EU officials expressed concerns about export restrictions on some critical minerals. EU demand for rare earths has been estimated to increase sixfold by 2030 and sevenfold by 2050 to produce permanent magnets that power motors in EVs and wind energy. Therefore, the Regulations can help enhance China’s negotiating leverage in resolving such trade disputes with importing countries. In addition, some developed countries (such as the U.S, EU states, Australia, and Japan) are forming the Minerals Security Partnership to secure a stable supply of critical minerals, which excludes China from global industrial chain cooperation. This first comprehensive regulation on rare earth management may also imply China’s commitment to advancing the high-quality development of its entire industrial chain.

Regarding the field of environmental protection, the relevant measures outlined in the Regulations are quite brief. For example, Article 12 mentions taking measures for environmental risk prevention, ecological protection, pollution control, and safety precautions to effectively prevent environmental pollution and production safety accidents. Since this policy seeks to establish a comprehensive management framework, it is anticipated that more detailed regulations and standards for environmental pollution prevention and control will be formulated in the future.