http://www.economist.com/node/16944034
"THE ECONOMISTS
China restricts exports of some obscure but important commodities
Sep 2nd 2010
Hong kong
Rare earths
Digging in
China restricts exports of some obscure but important commodities
Sep 2nd 2010
Hong kong
BEHIND the rise of resource-poor countries like Japan, South Korea and China into industrial giants has been the readiness of other countries to sell them critical commodities, albeit sometimes at excruciating cost. An unfolding collision around a group of elements known as “rare earths” is seen by some as a test of China’s willingness to reciprocate.
.Rare earths have become increasingly important in manufacturing sophisticated products including flat-screen monitors, electric-car batteries, wind turbines and aerospace alloys. Over the summer prices for cerium (used in glass), lanthanum (petrol refining), yttrium (displays) and a bunch of other –iums have zoomed upward (see chart) as China, which accounts for almost all of the world’s production, squeezes supply. In July it announced the latest in a series of annual export reductions, this time by 40% to precisely 30,258 tonnes. That is 15,000-20,000 tonnes less than consumption by non-Chinese producers, says Judith Chegwidden of Roskill Information Services, a consultancy.
China has cited “environmental” concerns as the reason for the export quotas. That is less implausible than it sounds. Rare earths are dangerous and costly to extract responsibly; China’s techniques have been anything but. It has deposits in two regions: Inner Mongolia, where rare earths are a by-product of iron-ore production, and in the south of the country, where they are found in various clays. Although the extraction process in each location differs, they share a need for highly toxic chemicals. Horror stories abound about poisoned water supplies and miners.
But since the spike in rare-earth prices seems not to have taken hold within China, many see another, more nefarious calculation behind the export quotas. Controlling the supply of rare earths means that China can also control their processing and use in finished goods, which would fit a broader effort to drive its manufacturers from low- to high-value goods.
If that is the Chinese plan, time is limited. High prices have already begun to propel a supply response elsewhere in the world. Ms Chegwidden says announcements of rare-earth projects around the world have accelerated in recent months. Molycorp, an American firm which in various guises dates back to the early 1950s, intends to restart what was once the world’s largest source of rare earths, a mine in California closed in 2002 over environmental concerns and the then unjustifiable cost of correcting them. In July it raised $394m in an initial public offering; its shares have risen by 20% since.
Similarly, Lynas Corporation of Western Australia has seen its shares rise eight-fold since early 2009, shortly before a state-owned Chinese company attempted to make an investment that was itself blocked by the Australian government. Toyota is reported to be close to securing key supplies in Vietnam; Sumitomo, another Japanese firm, is moving forwards in Kazakhstan. “The problem of supply is easily solved,” says John Kaiser of Kaiser Bottom-Fish Online, a website on mining. “It just takes three to five years and billions of dollars.” China has long seen commodities in terms of security of supply. It may yet persuade others to follow suit.
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cited from
http://www.economist.com/node/16944034
Analysis towards idea. This restricting of certain products is a way for China to place tariffs on certain industries so that China can keep its absolute advantage and keep its competitors down. To economists this is known as neo-mercantalists to Lockean's this is known as imperialism, as it creates unfair economics. To the World this is known as violations of anti-trust laws and cartel activities, I would believe, as the resource companies of China are SOE's.
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