1 Talking Point 5 The Week in 60 Seconds 6 China Ink Week in China 7 Energy and Resources 8 China Consumer 9 Banking and Finance 11 Chinese Models 23 March 2012 14 Society and Culture Issue 143 19 And Finally www.weekinchina.com 20 The Back Page Chinese play monopoly m o c . n i e t s p e a t i n e b . w w w y b g u in US, Europe and Japan take China to WTO over its restrictions on rare earths exports o k y n o a t B s t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Talking Point 23 March 2012 Export more, please Why a dispute over Chinese rare earths exports has gone to the WTO This is what they are fighting about: a rare earths mine in Jiangxi province ast Friday something rather un - near monopoly of rare earth met - In fact, the row over rare earths Lusual happened. A farmer in als and its decision to restrict their supply often takes on a deeper, po - Sichuan was bitten by a wild panda. export. Last week, they finally took litical undertone. For example, “I am fortunate to have been bitten action by filing a complaint with when Japan and China were in dis - by China’s national treasure,” joked the WTO. pute over the sovereignty of a series Liu Yunkang, before adding more of islands in 2010, Beijing’s point of seriously, “I used to think pandas Why the dispute? leverage was to impose an embargo were docile”. China accounts for a huge share of on the sale of rare earths. The image of a biting panda will rare earth production (97% is the fig - It worked. Japanese industry was resonate with policymakers around ure often mentioned). There are 17 horrified and Tokyo eventually the world, not least because the of these metals, with names like backed down, releasing the Chinese iconic bear is so closely associated scandium, yttrium and prome - trawler captain who had sparked with China itself. After all, foreign thium, and they are used in the the diplomatic incident (see officials are becoming increasingly manufacture of everything from WiC80). concerned about some fairly ag - iPads to fighter jets. But it wasn’t just Japan that suf - P h o t o gressive Chinese tactics – most es - That means that their price and fered as a result. Also a major con - S o u r pecially in trade-related matters. their availability has become a cern for the US and the Europeans c e : R e The latest trade issue to worry concern for industrialists around was that Beijing used the crisis to re - u t e r s the US, Japan and Europe is China’s the world. duce the total amount of rare earths 1 Week in China Talking Point 23 March 2012 that could be sold abroad. This was viewed by China’s critics as serving two purposes. First it would give Chinese manufacturers preferential access to supply. Second, it would drive up the prices of the metals that were sold overseas, to the ben - efit of Chinese miners. Did that happen? Pricing data can be hard to pin down because the earths are mined in small quantities and sales are usually private. But according to newspaper The Australian, rare earths miner Lynas estimates that prices for lanthanum oxide, which is used for applica - tions like polishing glass, reached more than $110 a kilogram in the Best Sovereign Bond House Best Trade Finance Bank second half of 2011, from an average of $4.88 in 2009. Similarly, the cost of dysprosium, a material used in smartphones, also shot up dramatically. By last July, export restrictions had seen its international price rise tenfold on a year earlier. The US Defence Depart - ment has published a series of Best Debt Arranger Best Loans Arranger longer term estimates too, suggest - ing that rare earths have surged be - tween four and 49 times in US dollar terms since 2001. So why act now? China’s export quota for rare earths was set last year at 30,184 tonnes. Rather than raising it this year in a Best Dim Sum Bond House Best Project Finance House nod to international partners, poli - cymakers (somewhat defiantly) have left it unchanged. The timing of the new WTO case seems to have been spurred by the outcome of another complaint to the trading dispute body. In late Jan - uary, the US, the EU and Mexico won a landmark verdict against Best Bank for Execution Best Arrangers of LBO China, which was then instructed to Across Markets Financings drop its export restrictions on raw materials like bauxite, magnesium and zinc. According to Reuters, the Chinese government has said it “deeply re - HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and grets” the ruling but will abide by it HSBC Bank USA, NA. 12-025 (China had appealed against an ear - 2 Week in China Talking Point 23 March 2012 lier verdict, but lost). That precedent opened the way to launch a similar case on rare earth restrictions, with US president Barack Obama saying export limits on the metals need to be lifted. In a statement to reporters at the White House, Obama added: “Amer - ican manufacturers need to have ac - cess to rare earth materials which China supplies. Now if China would simply let the market work on its own, we’d have no objections.” Of course, this is an election year in the US, and the president has much to gain from being seen to tough it out with the Chinese (Obama warned that he will not allow other countries to get away with "skirting the rules"). “China is always a hot topic dur - “We’re making great contributions” says China’s Chen Deming ing US presidential elections,” com - ments the Oriental Morning Post. The minister of industry and in - China’s change of strategy on ex - “Various trade measures taken formation, Miao Wei, then told Xin - ports was in issue 13. At the time, against China have a direct link with hua that in the past China’s mining the topic was largely ignored by this year’s election.” of rare earths had been “out of con - Western media but we cited plans Earlier this month Congress also trol”. Not only had the environment by National People’s Congress dele - passed measures allowing the Com - been damaged, the previous rate of gate Zhou Hongyu to revolutionise merce Department to slap higher exploitation had threatened to ex - the industry. duties on Chinese goods deemed to haust reserves within 30 years. Zhou explained why China benefit from unfair subsidies. As WiC has reported before (see needed a a change in industrial pol - And this week, tariffs were also WiC115), other countries have rare icy, saying explicitly that rare earths imposed on the import of Chinese earths too but have been reluctant exports should be reduced to solar panels said to be receiving to mine them. 30,000 tonnes annually (which is subsidies. Last year the US spent Indeed, one reason China ac - actually the quota this year). $3.1 billion buying solar panels counts for such a huge proportion His plan was also to consolidate made in China. of global supply is that California the hundreds of small players into closed down its own mines when three or so heavyweight miners to Back to rare earths, and China’s environmental regulations made “bring high profits and allow the case for the defence… them uneconomic. sustainable development of China’s The riposte from Chinese officials “Compared to countries also rich rare earth resources; and ensure was that their rare earths policy is in rare earth resources, but refusing China retains a long term grasp over “in line with WTO rules”, reported to mine them, China is now provid - rare earth pricing power.” the Beijing Times. The newspaper ing 31% of its reserves for more The implementation of Zhou’s cited Chinese Ministry of Com - than 90% of the world’s supply of plan is ongoing but much work has merce spokesperson, Shen Danyang, rare earths, making great contribu - already been done in weeding out who said that China had no inten - tions to the supply and stability of the smaller miners. The big players tion of curtailing free trade or pro - the world’s rare earth market,” that have emerged – akin in rare tecting domestic industries. Chen Deming, the minister of com - earth terms to BHP, Rio and Vale in P h o t o Instead the aim was to “protect merce, insisted. iron ore – are Baotou of Inner Mon - S o u r the environment”, and ensure that golia, Jiangxi Copper, China Min - c e : R e Chinese resources were mined sus - You read it first in WiC… metals and Chinalco (see WiC81). u t e r s tainably. Our first mention of rare earths and Industry insiders says a little 3 Week in China Talking Point 23 March 2012 longer is needed for the consolida - tion process. Planet China So what’s going to happen? Strange but true stories from the new China Not much, that is, in the short term. The 60-day process for the two sides TRAVELLING IN STYLE.