Changes to the Regulatory Framework of the Chinese Rare Earth Industry after the Global Financial Crisis

  • Roland Howanietz
Keywords: Chinese resource policy, Rare Earth Elements, reregulation, trade regime adjustments, WTO


In the wake of the Global Financial Crisis, the Chinese government radically adjusted the regulatory framework of the domestic Rare Earth Elements (REEs) sector. This article investigates the reasons for regulatory adjustments and the impact on China's market power. The analysis of long-term REEs price and production trends illustrates four reasons for regulatory adjustments: the China discount, the need for industrial upgrading, growing domestic REEs demand and severe environmental pollution. The analysis of the effects of regulations shows that the restrictive trade regime has increased China's market power and ability to affect prices, which led to a redistribution of global welfare in favour of China. However, this market power is only temporary due to foreign countermeasures such as WTO-based allegations.


Ali, Saleem H. 2014. 'Social and environmental impact of the Rare Earth industries'. Resources 3 (3): 123-134.

Biedermann, Reinhard P. 2014. 'China's rare earth sector– between domestic consolida¬tion and global hegemony'. International Journal of Emerging Markets 9 (2): 276-293.

Clagett, Nichole 2013. 'A rare opportunity: Streamlining permitting for rare earth materials within the United States'. Journal of Energy and Environmental Law 4 (2), 123-138.

Cuddington, John, and Grant Nuelle 2013. Variable long-term trends in natural prices. The ongoing tug-of-war between exploration, depletion, and technological change. Colorado School of Mines, Division of Economics and Business Working Paper No. 2013-02.

Devarajan, Shantayanan, Go, Delfin, Schiff, Maurice, and Suthiwart-Narueput, Sethaput 1996. The whys and why nots of export taxation. The World Bank Policy Research Working Paper No. 1684.

Fifarek, Brian J., Veloso, Francisco M., and Cliff I. Davidson 2008. 'Offshoring tech¬nology innovation: A case study of rare-earth technology'. Journal of Operations Management 26: 222-238.

Golev, Artem, Scott, Margaretha, Erskine, Peter D., Ali, Saleem H., and Grant R. Bal¬lantyne, 2014. 'Rare earths supply chains: Current status, constraints and opportuni¬ties'. Resources Policy 41: 52-59.

Goldman, Joanne Abel 2014. 'The U.S. rare earth industry: Its growth and decline'. The Journal of Policy History 26 (2): 139-166.

He, Yujia 2014. 'Reregulation of China's rare earth production and export'. International Journal of Emerging Markets 9 (2): 236-256.

Hotelling, Harold 1931. 'The economics of exhaustible resources'. Journal of Political Economy 39 (2): 137-175.

Hurst, Cindy 2010. China's rare earth elements industry: What can the west learn? Institute for the Analysis of Global Security, Washington, D.C.

Information Office of the State Council 2012. Situation and policies of China's rare earth industry. Beijing: Foreign Languages Press.

Kim, Jeonghoi 2010. Recent trends in export restrictions. OECD Trade Policy Papers No. 101, OECD Publishing.

Liu, Huifang, Lei, Lei, and Changxie Ye 2013. 'Study on rare earth management game between central and local governments in China'. Cross-Cultural Communication 9 (1): 31-35.

Massari, Stefania, and Marcello Ruberti 2013. 'Rare earth elements as critical raw materials: Focus on international markets and future strategies'. Resources Policy 38 (1): 36-43.

Morgenstern, Richard D.; Pizer, William A., and Jhih-Shyang Shih 2001. 'The cost of environmental protection'. The Review of Economics and Statistics 83 (4): 732-738.

Mueller, Maximilian, Schweizer, Denis and Volker Seiler 2014. Wealth effects of Rare Earth prices and China's Rare Earth Elements policy. Center for International Economics Working Paper Series No. 2014-13.

Papp, John F., Bray, E. Lee, Edelstein, Daniel L., Fenton, Michael D., Guberman, David E., Hedrick, James B., Jorgenson, John D., Kuck, Peter H., Shedd, Kim B., and Amy C. Tolcin 2008. Factors that influence the price of Al, Cd, Co, Cu, Fe, Ni, Pb, Rare Earth Elements, and Zn. U.S. Geological Survey Open-File Report 2008-1356.

Perman, Roger, Ma, Yue, Common, Michael, Maddison, David, and James McGilvray 2011. Natural resource and environmental economics. Harlow: Pearson Education Limited.

Pindyck, Robert S. 1977. Optimal exploration and production of a nonrenewable resource. Massachusetts Institute of Technology Working Paper 77-013.

Pothen, Frank 2013. Dynamic market power in an exhaustible resource industry: The case of Rare Earth Elements. ZEW Discussion Paper No. 14-005.

Prebisch, Raul 1950. The economic development of Latin America and its principal problems. UN document no. E/CN.12/89/Rev.1.

Ribeiro, Gustavo Ferreira 2014. 'Export controls as industrial policy on natural resources regulatory limitations on China-raw materials and China-Rare Earths cases'. Brazil¬ian Journal of International Law 12 (2), 78-92.

Ricardo, David 1817. On the principles of political economy and taxation. London: John Murray.

Schueler, Doris, Buchert, Matthias, Liu, Ran, Dittrich, Stefanie, and Cornelia Merz 2011. Study on rare earths and their recycling. Oeko-Institut e.V. Final report for the Greens/EFA group in the European Parliament.

Siebert, Horst 1985. Ricardo- und Hotelling-Paradigmen fuer die Preisbildung natuerlicher Ressourcen. No. 205, Discussion Papers, Series I, University of Konstanz: Depart¬ment of Economics.

Siebert, Horst 1990. 'Natuerliche Ressourcen und Weltwirtschaft'. Wissenschaftliches Archiv 126 (1): 1-14.

Singer, Hans Wolfgang 1950. 'The distribution of gains between investing and borrow¬ing countries'. The American Economic Review 40 (2): 473-485.

Slade, Margarate E. (1982): 'Trends in natural-resource commodity prices: An analysis of the time domain'. Journal of Environmental Economics and Management 9: 122-137.

Slade, Margaret E., and Henry Thille 1997. 'Hotelling confronts CAPM: A test of theory of exhaustible resources'. The Canadian Journal of Economics 30 (3): 685-708.

Solow, Robert M. 1974. 'The economics of resources or the resources of economics'. The American Economic Review 64 (2), Papers and Proceedings of the Eighty-sixth Annual Meeting of the American Economic Association, 1-14.

Stiglitz, Joseph E. 1976. 'Monopoly and the rate of extraction of exhaustible resources.' The American Economic Review 66 (4): 655-661.

Tse, Pui-Kwan 2011. China's Rare-Earth industry. U.S. Geological Survey Open-File Report 2011-1042.

U.S. Environmental Protection Agency 2012. Rare earth elements: A review of produc¬tion, processing, recycling, and associated environmental issues. Washington: Office of Research and Development.

Wang, Xibo, Lei, Yalin, Ge, Jianping, and Sanmang Wu 2015. 'Production forecast of China's rare earths based on the Generalized Weng model and policy recommenda¬tions'. Resource policy 43, 11-18.

World Trade Organization 2010. World trade report 2010: Trade in natural resources. Geneva: WTO.

Zhang, Lu, Guo, Qing, Zhang, Junbiao, Huang, Yong, and Tao Xiong 2015. 'Did China's rare earth export policies work? Empirical evidence from USA and Japan'. Resources Policy 43, 82-90.

Zhang, Shujing 2013. 'On problems in rare earth exports of China and countermeasures'. International Business and Management 6 (1): 21-25.