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Protect the strategic sector of industrial metal reserves. This is why China issued the “Regulation on the Management of Rare Earths” – National Security

The measure will go into effect on October 1, 2024. Although the shift in control of the global chain from the United States to China was initially enabled by Beijing's looser environmental and regulatory standards, it is not true that China now maintains its advantage because of this. Over the past decade, Beijing has introduced new environmental regulations, enforced existing ones, and innovated some extraction and refining processes, making them cleaner. Chinese dominance in the rare earth industry is a matter of politics, not geography.



Today, rare earth (REE) resources play an increasingly important role in the development of global science and technology. A few days ago, China announced the Rare Earth Management Regulations, clarifying that REEs are owned by the state and that the CCP will implement protective exploitation of these strategic resources. The measure will go into effect on October 1, 2024.


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When clarifying the context of the Regulations, the Chinese side said there are still some outstanding problems in the national management of REE, including "insufficient means and sanctions to correct illegal behavior such as illegal mining or illegal smelting and separation, production without or above target, and trade in illegal rare earth products."


Reuters and the German newspaper Der Spiegel said that China adopted such "Regulations" in order to protect the supply of REEs through a high level of national security. Singapore's "Lianhe Zaobao" and "Nikkei Asia" also specified that the introduction of these "Regulations" aims to firmly control the strategic rare earth resource and "protect its important reserves of industrial metals".


Hong Kong's South China Morning Post pointed out on June 30 that China is the world's largest producer of rare earths, a dozen metallic elements crucial to modern technology, from electric cars to wind turbines, robots and military weapons . At the same time, rare earths require rigorous processing to produce usable materials, and China is also a leader in rare earth refining technology. 


In recent years, China has successively introduced a series of new policies related to rare earths.

The introduction of the new "Regulations," totaling 32 articles, includes:

  • clarifying the principles of mining operation;

  • strengthening the protection of rare earth resources;

  • improving the management system;

  • promoting high-quality development of the REE industry;

  • improving the supervision system of the rare earth industrial chain;

  • clarifying supervision and management measures, legal responsibility and six other aspects of content.


In addition to clarifying that rare earth resources belong to the state, the new rules require:

  • that extraction enterprises and those involved in rare earth smelting and separation be identified;

  • that the total amount of rare earth mining and rare earth smelting and separation be regulated;

  • that dynamic management be optimized; that a product traceability system be established;

  • that circulation is strictly managed.


In addition, the Regulations clarify that the state shall "implement unified planning for the development of the rare earth industry and encourage and support research, development and application of new technologies, new processes, new products, new materials and new equipment in the REE industry."


The measure also stipulates that companies that violate the relevant provisions can be fined five to 10 times their illegal income and fines of up to 5 million yuan.


"Rare earths are an indispensable and important element and a key strategic resource for modern industry."

The Ministry of Justice and the Ministry of Industry and Information Technology said in response to a reporter's question about the regulations on June 29 that "in recent years China has introduced a series of policies and measures regarding access standards to the rare earth industry, industry consolidation, environmental protection and so on, which have effectively promoted and safeguarded the sustained and healthy development of the industry."


At the same time, there are still some outstanding problems in the management of rare earths in China, such as management responsibilities covering the entire industrial chain, regulatory measures to be improved, the urgent need to improve the industry's innovation capacity and level of greening and intelligence, and inadequate means and sanctions to rectify illegal mining or illegal smelting and separation, production without or exceeding the target, and the sale and purchase of illegal rare earth products, among other illegal acts. Therefore, it is necessary to formulate special administrative regulations to provide guarantees of legality for the protection of rare earth resources and industrial development.


Der Spiegel reported that the regulations indicate that China wants to better protect its rare earths "as a matter of national security." Nikkei Asia noted that China's underground resources are state-owned, but that some private sectors continue to mine and smelt rare earths illegally, and that the latest regulations aim to "protect national resource security and industrial safety."


Rare earth procurement: strategic error of the U.S.


The rare earth elements (REEs) and critical minerals are a group of 17 metals: 15 elements from the lanthanide series and two chemically similar ones, scandium and yttrium. Each with unique vital properties, they underpin the production, development, delivery and support of essential services such as telecommunications and information technology, food and agriculture, finance, health care health care, education, transportation and public safety. In the civilian sectors of the economy, strategic and critical materials and related supply chains are essential to countless artifacts, ranging from personal electronics (an i-Phone, for example, contains eight REEs) to consumables for fuel, food, and medical supplies, to housing construction and critical infrastructure support. In the defense industrial sector, the strategic and critical materials ensure the expansion of production and development of military items (an F-35 fighter jet contains about 420 kilograms of REE and these are essential for guided missiles) and the conduct of armed forces operations. Their demand is expected to increase over the next two decades, particularly as the world acts to eliminate net carbon emissions by 2050.


China, although it has only about 30 percent of global rare earth reserves, controls 50-60 percent of their global extraction and 80-90 percent of the market at the intermediate processing stage. Currently, 98% of the EU's supply of rare earths comes from China. In contrast, US dependence is estimated to be around 80%.

The United States was the major global player in rare earths from World War II until the early 1990s. Beginning in the 1980s, however, government investment ceased and basic research came to a halt. By the 1990s, the public-private investment mechanism disappeared, while China had begun to effectively use very similar policies to facilitate the growth of its domestic sector.


Today, China holds a commanding position in the global rare earth supply chain, from mining to processing to end uses.

Beijing uses numerous tools to preserve its dominance, such as export controls, production quotas, state investment in basic research, nationalization of the industry, and, more recently, state consolidation into an integrated mega-enterprise.

Rare earth mining is highly polluting and incurs high environmental and health costs for local communities. After they are removed from the ground, they must be separated, refined into oxides and then processed into metals and alloys before they are ready for industry. The secondary process is also highly damaging to the environment.


Although the shift in control of the global chain from the United States to China was initially enabled by Beijing's looser environmental and regulatory standards, it is not true that China now maintains its advantage because of this. Over the past decade, Beijing has introduced new environmental regulations, enforced existing ones, and innovated some extraction and refining processes, making them

cleaner.


Chinese dominance in the rare earth industry is a matter of politics, not geography.

Insert REEs into the national security perimeter


In November last year, the WeChat public website "Ministry of National Security" published an article titled "How to keep the "vitamins" of strategic industries firmly in their hands?" an article that stressed that rare earths are strategic mineral resources "directly related to national security.


The South China Morning Post and the United Daily News both mentioned that in recent years, in order to consolidate its leading position in the rare earth industry, and also in response to the suppression of high technology in China by the United States and Europe, China has successively introduced new policies related to rare earths.


Since last year, to safeguard security and national interests, China has imposed export controls on two key metals, gallium and germanium, and graphite.

On Dec. 21, the Ministry of Commerce and the Ministry of Science and Technology issued an announcement on the publication of China's Catalogue of Banned and Restricted Technologies for Export. In the part of the export ban, "rare earth refining, processing, use of technology" was included, specifically regarding the technology of rare earth extraction and separation process; the technology of rare earth metals and alloys production; the technology of preparing samarium cobalt, neodymium iron boron, cerium magnets; and the technology of preparing rare earth calcium borate oxygen.


This catalog adjustment attracted the attention of the U.S. media. Bloomberg said that as the world's largest supplier of rare earths, China will place rare earth metals and rare earth magnet production technology on the list of banned or restricted exports, which could increase the difficulty for the U.S. and other Western countries to supply strategic raw materials.


Although this new regulation does not affect the export of rare earth products per se, it could still have an impact on the development of the rare earth industry in other regions.




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