China Supports Rare Earth Industry with Special Fund

on Nov 24, 2012
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**China Subsidises REE Miners to Promote “Orderly Development”**

China, whose production of rare earth elements (REEs) accounts for about 95 per cent of the total global output, has changed tack on its REE policy amid fears that its hard line on producers threatens its dominance of the global market for the 17 key substances crucial for making a range of high-tech products, The Financial Times reported on 22 November 2012.

The Chinese Finance Ministry announced on Wednesday that it will allocate special funds to its rare earths sector that will see miners, which have passed the country’s environmental checks and qualify for the incentive, receiving a subsidy of 1,000 yuan (£100.5) for every tonne of rare earth oxides produced. The allowance for smelting companies will be 1,500 yuan (£150.6) per ton of their production capacity, while financial support to authorised high-tech application projects will be up to 20 per cent of their annual investment, where the total amount will not exceed 50 million yuan (£5 million) for a single project.

Chen Zhanheng, deputy secretary-general of the China Rare Earths Industry Association, a government-linked think-tank, said the move which Beijing describes as “promoting orderly development,” would help the large, state-controlled rare earths companies in the sector. He said: “In the long run, the policy can promote resource protection and effective utilisation of rare earths.”

**Drastic Policy Shift**
The announced subsidies represent a significant shift in China’s policy of the past two years, which focused on restricting production of rare earths, closing down illegal mines, and tightening control of exports. These moves led to fluctuations in prices and caused global demand to slow, prompting two of China’s largest producers to suspend production this year because of the poor market. As a result, the country’s REEs exports fell 11 per cent in the first nine months of this year compared with the same period in 2011.

!m[](/uploads/story/890/thumbs/pic1_inline.png)Although the recently announced subsidies do not represent a huge amount of money – between £23 million and £25 million for the industry annually – they underline Beijing’s determination to reshape the industry in a way that allows the state to have greater control over global REEs prices and supply.
**China’s Monopoly in REE Industry Causes Concerns**
Beijing’s control of rare earth supplies is of a great concern to many countries, especially nations such as the United Stated and Japan, whose hi-tech and defence industries are heavily dependent on access to rare earth elements. This increasing concern over China’s REE market control and the reliability of its supply have spurred a number of investments in rare earths mines outside China, several of which are set to start producing as early as next year.
As iNVEZZ reported earlier this month, the latest investment in the sector was made by Japanese trading house Sumitomo Corp. (TYO:8053) which announced its joint venture with Kazakhstan’s National Atomic Company Kazatomprom for the development of a rare earth plant in the former Soviet republic with the aim of the output being exported primarily to Japan, chipping away at China’s position as the country’s premier supplier of rare earth minerals.

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