Research On China’s Rare Earth Export Markup Capability

As one of our country’s most important strategic resources, rare earth exports have played an important role worldwide for a long time. However, a number of conspicuous problems persisted in the development of our rare earth industry. On the one hand we have no negotiating power in pricing and the profit margin of rare earth exported by China is rather thin in the international market. On the other hand, rare earth mining has done harm to China’s natural environment, disorderly exploitation has consumed China’s rare earth resources rapidly, which will threaten china’s status as a large country in rare earth resources. To change such an awkward situations, China has introduced a series of industrial policies and export restrictions aiming to regulate the export of China’s rare earth resources and protect the rare earth resources. These policies have succeeded in improved prices of rare earth in the international market but just for a short time. However, does the rising of the prices mean China’s market power of rare earth products? Does China have the power to mark up prices. The present study conducts an empirical test of China’s rare earth in the international market with the newest data available and the residual demand elasticity method. The result of empirical test shows that China’s rare earth does own some market power in the international market, but compared with the huge market share of China’s rare earth, the market power is ironically weak. On the other hand, the oligopoly status of rare earth on the international market does not bring pricing power to China’s rare earth industry, and thereby some related policies are urgently needed to regulate the production and export of China’s rare earth. However, these policies have actually caused strong rebounds of EU, USA and Japan which were used to China’s cheap rare earth high quality. They resorted to the WTO and accused China of its related policy after the end of the raw materials case. And at last they won the lawsuit with their proficient manipulation of WTO rules. Because the related adjudication of WTO is binding on related parties, China has to obey such adjudication as a responsible world player. And now the main problem is nailed down on how to revise the related policy based on the WTO rules. The present study contributes in analyzing the main reason why China failed in this case, and providing some relevant advice.