The Causes And Countermeasures For The Lack Of International Pricing Power Of Chinese Rare Earth

Rare Earth is an important strategic resource. China’s rare earth rank first in the world on reserves, production and export volume. Nevertheless, China has not pricing power in the international trade of rare earth. In order to change this disadvantage situation, China has adopted a policy of quota in rare earth export. However, this policy has caused a big fuss in the international community. There are several reasons for the lack of rare earth pricing power, among which, the most important reason is that the total trade cost of Chinese rare earth has not been fully internalized. In this thesis, we demonstrate that the export price of rare earth has not truly reflect the rare earth’s labor cost, environmental cost, intergenerational cost and mining tax cost, providing a theoretical support for the formation of a reasonable rare earth price and the obtainment of international rare earth pricing power.The thesis has four parts in addition to Introduction. In the second part, we demonstrate the lack of rare earth pricing power from representation and solid evidence. The relevant data show that though China occupies first place in the world in reserves, production and export volume of rare earth, it failed to use the advantage of supply-side, and the international price of rare earth does not rise along with the world economic development but has been trending down. The result of Granger causality test in this work and the conclusions of other scholars’ all indicate that China lacks the pricing power in the international trade of rare earth.A theoretical analysis is demonstrated in the third part. The total trade cost of resource commodities contains production cost (especially labor cost), environmental cost, intergenerational cost, mining tax cost, transaction cost and management cost. Several theories, such as the labor value theory, the externality value theory, the intergenerational equity theory, as well as mining rent theory, have been applied in analysis of the total trade cost of rare earth. Besides, a theoretical model about the correlation between pricing power and total trade cost is build up in the this part.In the fourth part, we analyze the price of Chinese rare earth product whether fully reflects the labor cost, environmental cost, intergenerational cost and mining tax cost, and apply our theoretical model to analyze the reasons for the lack of the Chinese rare earth international pricing power. The comparison of the indexes of the proportion of labor wage to gross domestic product between China and other countries with abundant rare earth shows that the labor cost of the Chinese rare earth is obviously lower than other countries’. The index of the proportion of mining labor wage to gross industry product also demonstrates that the labor cost of Chinese rare earth product is unreasonable. By analysis of two indexes, the carbon dioxide emissions per million dollars gross domestic product and the proportion of the pollution damage to GNI caused by emissions of carbon dioxide in countries with abundant rare earth, we demonstrate that China is absent from supervision for environment and the environment cost of Chinese rare earth product is far lower than that of other countries. In order to show the environment issue caused by mining for rare earth, examples concerning LONGNAN county JIANGXI province, PINGYUAN county GUANGDONG province, ZHOUTAO village XINGLING town GUANGDONG province are given. Through the introduction of the measures for protecting rare earth resources and the project of recovery for rare earth implemented by United States and Japan, we demonstrate that China does not take into account the intergenerational cost of rare earth while some other countries do. By comparison of levy standard of royalty, rent, resource tax, we show that the mining tax cost of Chinese rare earth is obviously lower than other countries’. In a word, all these analyzes suggest that the price of Chinese rare earth is unreasonable. The underestimation of rare earth price is the important reason for the lack of rare earth pricing power.Suggestions are given in the fifth part of the thesis. We suggest that China should form a reasonable price of labor, strengthen environmental regulation, establish intergenerational compensation fund and reform the system of mining tax.