I was surprised to see rare earth splashed across the front page of the China Daily when I picked up the paper this morning, with the headline claiming that “Rare earths ‘will not be (a) bargaining instrument’”. A reference to statements made yesterday by Zhu Hongren, spokesman for the Ministry of Industry and Information Technology. Most readers of the daily may have been confused about what rare earths are and why they were Friday’s headline story, while those in the know were left scratching their heads, trying to figure out the Rubik’s cube of recent statements by Chinese officials regarding rare earth.
There have been countless attempts by media to try to make sense of China’s export embargo against Japan and consequent statements by various government officials and ‘unnamed sources’, as well as the current availability of export quotas. Well, now it’s my turn:
The Embargo on RE Exports to Japan:
The only logical explanation that I can determine for this is that, in the midst of the China-Japan Diaoyu Islands row, an individual in a high position in Beijing, unrelated to RE policy and apparently not too knowledgeable about trade issues either, put forth a directive to halt all shipments of RE to Japan. I believe it must have been someone in a relatively high position because the directive was implemented fairly quickly and effectively, but obviously with little consultation. Most in the Ministry of Commerce (MOFCOM), which handles RE export issues would likely have foreseen the inevitable fallout. If it had involved someone knowledgeable about the industry, they would never have dared assume that a RE embargo against Japan would go unnoticed by media, which, from recent statements, appears to have been the assumption, or at least the hope. While trying to put their foot on the throat of the Japanese, they stepped on a lot of western hands. As a consequence, since the embargo was reported, China has been trying to manage the fallout, as they quickly realized that media coverage only served to strengthen foreign calls for WTO action against China’s RE export policies. Claims that there were never any restrictions in place have, at best, been hopeful efforts to undo the damage. Even Premier Wen Jiabao was called in to reaffirm China’s willingness to export REEs. Today’s headlines continued this attempt at damage control, following statements by Secretary of State Hillary Rodham Clinton made yesterday in Hainan, which brought the spotlight back to RE export restrictions.
The Fallout:
It was reported by some media last week that all exports of RE to the US and EU had also been halted. With suggestions that this was punishment for the Obama Administration’s decision to begin investigating whether China’s green energy policies violate WTO rules. The Chinese Communist Party may be very sensitive to actions by western government’s, but after the Japanese embargo fiasco, I am highly skeptical that RE export policies are going to change every time that a foreign government issues a statement regarding China. Not surprisingly, it was reported shortly thereafter that shipments were moving without delay. What I have heard rumors of (yes, it’s my turn to spread some RE hearsay) is that MOFCOM is going to turn off the tap for RE exports for the remainder of this year, until new quotas are issued in late January or February, as they normally are. This would be done under the guise that all export quotas for 2010 have been used up. Although I’m sure it would make headlines around the world, this would not be a major issue for the industry as export quotas for 2010 are actually almost completely used. China’s rationale for such a policy would be to cover their tracks over the Japanese embargo. This would help China to muddy the water if you will, and claim that it was only a matter of miscommunication about the amount of RE export quotas remaining for this year, thereby enabling China to continue claiming that export quotas are purely for environmental purposes and lessen the fodder for Japanese or US trade representatives should they pursue a WTO case against China.
It’s only a theory based on what I’ve heard from traders and exporters here in Beijing. But I haven’t been convinced by any other explanations I’ve heard so far.
- Terence B.
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