China Reaches Out on Rare Earth

April 25, 2012 (Source: WSJ) — China extended what it may have intended as an olive branch to the U.S., Japan and Europe in their dispute over rare earths even as it defended its export controls.

China’s Ministry of Industry and Information Technology on Wednesday invited foreign companies to team up with local firms on rare-earth technology ventures, particularly on environment-friendly projects.

“The U.S.’s, Japan’s and Europe’s [capabilities] in environmental management, recycling, technology research and development of high-end applications are welcome in China,” ministry spokesman Zhu Hongren told an online news conference.

China controls nearly all the world’s production of rare earths—a group of 17 minerals with high-tech uses ranging from personal computers to advanced weaponry—but hopes to move up the value chain to become a manufacturer as well as supplier of rare-earth-based products.

As part of that strategy it has repeatedly invited foreign companies to work on China-based rare-earth joint ventures, both to bolster its own technological capabilities and address foreign complaints over its rare-earth quotas. But the latest gesture’s emphasis on environment technologies and the singling out of the U.S., the European Union and Japan—which last month filed a rare-earth action before the World Trade Organization—as potential collaborators appeared to be an effort at least partly intended to address the WTO complaint.

Beijing wants “advanced foreign companies with strong technology and capital” to step up “exchanges and cooperation…[in] jointly developing the rare-earth industry,” Mr. Zhu said.

The move doesn’t represent an easing by China of its rare-earth export controls, and one expert saw two potential explanations for the move.

“There could be two elements,” said Michael Komesaroff, an expert on China’s metal industry with the consulting firm Urandaline Investments. “One is that the Chinese may genuinely have a desire to improve environmental interests and they think they can learn from foreign technology. Another is that this is an olive branch because of the trade complaint taken to the WTO by the U.S. and the EU.”

Global tensions over China’ rare-earth controls came to a head in 2010 when China lowered its export quota by about a third. Beijing’s move sent rare-earth prices soaring—in some cases rising 30-fold over a three-year period—and escalated global concerns over China’s dominance in the sector.

China has maintained that it is motivated by environmental needs rather than economic ones in its policy.

“It takes seven [metric] tons of acid to produce one ton of rare-earth oxides, and the production creates a lot of ammonia, heavy metals and other pollutants,” Mr. Zhu said. “Our policies are entirely for protecting the environment, resources and sustainable development” and “are in accordance with WTO rules,” he said.