Business / Opinion

New strategies needed to protect resources, environment

By Xin Zhiming ( Updated: 2014-03-27 11:24

China has lost a dispute at the World Trade Organization over its restrictive policies on rare-earths exports. It means China would either appeal within 60 days or accept the ruling and is forced to update its management policies.

Rare earths, which refers to a combination of 17 elements used in high-tech industries, such as smartphones, electric cars and even national defense equipment, is a crucial strategic resource.

The US has the largest rare-earths reserves in the world, accounting for 40 percent of the global total, followed by Russia (30 percent) and China (23 percent). However, China, the third-largest reserve-holder, has become the world's largest producer, supplying about 90 percent of the global demand.

As a transitional economy, China's management of the crucial strategic material has had many loopholes, resulting in wild tapping and sales of the resources. An undisputable proof of that uncontrolled exploration is the fact that China had the largest rare-earths reserve in early 1980s, accounting for about 80 percent of the global total.

The Western traders, who are usually major players that control the pricing power in global trade, have played a dubious role in the wild tapping of rare earths in China. They increase purchases when prices are low and stop buying when prices are up, ultimately forcing Chinese sellers — mostly small companies that have little bargaining power — to offer lower prices and increase exports.

The unrestricted tapping and cheap sales of the resources have also led to environmental degradation and rising occurrences of certain metal-related diseases for people in the mining areas.

What is especially unfair to China is that some countries have used low-priced imports from China not for instant industrial use but for hoarding. It means in the future, when China's rare-earths reserves run out, they could re-sell them back to China at much higher prices.

Therefore, it is purely understandable and reasonable for China to try to control exploration of the resources to prevent undue consumption of the resources, improve the sustainability of the domestic industry and protect the health of the local people.

Since the WTO has ruled that China's existing rare earths-related trade policies will not be allowed, China must appeal or, if it accepts the ruling, update its management of the industry swiftly.

While the authority of the WTO ruling should be respected, China's national interest should be respected, too.

First, China should use more market-oriented means to encourage consolidation of the industry, which is composed of more than 100 uncompetitive exporters. It will help improve the bargaining power of the domestic industry and prevent low-priced dumping of key resources by small domestic companies.

Second, it must sharply increase environmental taxes on tapping of the resources to raise the cost of production and protect wild exploration behavior.

Finally, establishment of rare earth reserves, which has been underway, must be stepped up to ensure the long-term security of China's resource consumption.

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