China to Raise Tax on Rare Earth Metals

March 29, 2011 Updated: March 31, 2011

A huge new tax hike on rare earth metals may backfire after triggering rampant illegal mining and black market exports, among other problems.

China’s Ministry of Finance and State Administration of Taxation recently announced a tax increase on rare earth resources starting April 1, with the highest rate increase set at 100 times the current rate.

The new tax rates will be 60 yuan (US$9.14 ) per ton for light rare earths, and 30 yuan (US$4.57) per ton for medium and heavy rare earths.

The present tax regulation for rare earth minerals, under the category of “other nonferrous metal ores,” rates these minerals between 0.5 and 3 yuan (US$0.07 to 0.45) per ton or cubic meter, thus making the largest tax increase more than 100 times higher.

The tax increase reflects China’s monopoly in rare earth mineral mining and export.

China has large reserves of rare earth minerals and has come to control 95 percent of the world’s production after years of under-pricing international competitors and forcing them out of business, according to previous The Epoch Times reports.

Rare earth metals are critical for the manufacturing of many high-tech goods including super conductors, hybrid cars, fiber-optic cable, and cell phones. In the U.S., the military also has a great need for some rare earth elements.

In August 2010, news that China would start restricting the export of rare earth metals raised alarms around the world. Six months prior China capped production levels for the metals and imposed a moratorium on all new mining licenses, the report said.

Illegal Mining

While export restrictions and news of higher taxes have driven up prices for rare earth metals, huge new profit margins have stimulated illegal mining operations in China and black market deals.

“The current price of mixed rare earth has risen to about 150,000 yuan (US$22,850) [per ton], but the mining cost is only 30,000 yuan (US$4,570),” Jiang Hushui, who worked in mineral trading in Southeast Asia, told The Epoch Times.

Jiang said the huge profits have triggered rampant illegal mining of rare earths.

Chinese media has recently reported about these illegal mining operations in Ganzhou, Jiangxi Province. Production quotas for Ganzhou were originally set at 8,500 tons for 2010. But industry experts estimate the actual output to have been at least 30,000 tons, most of it through illegal mining and smuggled out of the country, tax-free, via the international black market.

Resource Depletion

Financial and economic columnist Zhang Jinglun said the Chinese regime’s highlighting the scarcity of rare earths is nothing but self-defeating as it encourages rampant illegal mining, development of smelting and separation technologies that cause ecological destruction and waste of resources, while high-end application development lags behind.

In the 1960s, China had about 90 percent of the world’s rare earth minerals according to Zhao Zengqi , director of Baotou Rare Earths Research Institute in Inner Mongolia. But since China started to exploit, destroy, and waste the rare earth resources the percentage has dropped significantly, Zhao said.

The Information Times reported on Oct. 18, 2010 that China has only about 30 percent of global rare earth reserves, or about 27 million tons. At the current production rate, the medium and heavy type rare earth can only last 15-20 years, and there might be a need to import them in the future, the report said.

Read the original Chinese article.