China controls 97 percent of the world’s supplies of rare earth metals used in weapon systems and in many modern technological devices, including wind turbines, hybrid cars, and electronics.[i] China views itself as the OPEC of rare earth metals because the country can affect the supply by limiting its exports to countries dependent on its rare earth metal resources. China controls the world’s market for rare earth elements, not because China has the vast majority of rare earth reserves (in fact, China only has 36 percent of identified rare earth reserves[ii]), but because China does not impose the regulations on mining rare earths that other countries do. China can control the market at lower cost, putting other competition out of business. It has cut export quotas, increased export taxes and even banned exports of rare earths to Japan due to a maritime territorial dispute.[iii] As a result, countries are concerned about supplies of rare earth elements.

Mining and Processing of Rare Earth Metals

To mine rare earth elements, acid is pumped down bore holes where it dissolves the rare earth elements. Those elements are then processed by using more chemicals, acid and high temperatures, and the waste, which is toxic, is disposed. In China, the waste is pumped into artificial ponds with earthen dams where the seepage and waste has killed crops and livestock and caused health-related issues. In the City of Baotou in Inner Mongolia, seven million tons a year of mined rare earths are dumped into a five-mile wide tailing lake that has killed farmland, made thousands of people ill, and put one of China’s key waterways in jeopardy. Official studies compiled 5 years ago indicate high rates of cancer, osteoporosis, and skin and respiratory diseases. Since then, studies of toxicity and radiation have been kept secret.[iv]

The lake of toxic waste at Baotou, China

China’s Export Quotas and Taxes

China has announced several cuts in export quotas of rare earth metals and raised export taxes to as high as 25 percent, from zero to 15 percent previously.[v] For the first quarter of 2011, China announced a 35 percent cut in its export quota compared to the first quarter of last year.  Prior to that, in the summer of 2010, China had cut exports of rare earth elements by 40 percent, causing a surge in prices, to conserve supplies for its own domestic industry and to exert its global dominance. Foreign Ministry spokeswoman Jiang Yu said, “The international community has a joint responsibility to ensure the supply of rare earths. Other nations that have rare earth resources should proactively develop and make use of them, to jointly shoulder responsibility for global supplies.”[vi]

Country and Industry Initiatives

And other nations around the world are concerned and are taking action. The U.S. Department of Energy issued a report indicating that the U.S. is too dependent on China for an important resource needed for clean energy technologies and have drafted a strategy report.[vii] The report looks at energy products that use rare earths and that are important to the department’s clean energy objectives over the next 15 years with goals of identifying substitutes, improving the U.S.’ capacity to more efficiently use the rare earth materials, recycling them, and obtaining more global diversity in supplies.

Germany is looking to establish an agreement with Kazakhstan for rare-earth metals in exchange for technological know-how.[viii] The European commission plans to assist countries in Africa to mine rare earths and wants its industry to recycle rare earths and to stockpile them in order to mitigate higher prices and forestall shortages.[ix] And, Japan and South Korea have already begun stockpiling.[x]

Industry is also looking at alternatives. General Electric has a project to reduce rare earths in the production of wind turbines by 80 percent.[xi] The project involves the development of nanocomposite magnetic materials that have increased magnetic properties compared to those found in batteries marketed today. While, they believe the technology could be available in a few years, currently only thin films of nanocomposites can be manufactured.[xii]

Hitachi has developed machinery to recycle rare earth metals from discarded hard- disk drives and compressors, extracting 100 rare earth magnets from hard disk drives per hour, eight times faster than manual labor.[xiii] Hitachi expects to get 10 percent of its rare earths through recycling when it begins operation of this industry in fiscal 2013.

And, Molycorp, owner of a rare earth mine in Mountain Pass, California, claims to have developed a new method for extracting the rare earth metals that is more environmentally friendly and competitive with Chinese operations. Their claim is that the per unit operating costs will be lower than that of China.[xiv]

China’s Strategic Reserve Plans

According to the China Nonferrous Metals Industry Association, China plans to create a strategic reserve of rare earth metals.  Inner Mongolia, which contains 75 percent of China’s rare earth deposits, is building a strategic reserve on behalf of the central government.[xv] At least ten storage facilities are being built that can hold more than the 39,813 metric tons China exported last year. [xvi] They are being managed by the world’s largest producer of rare-earth metals, government-controlled Baotou Steel Rare-Earth Hi-Tech Company.  Reports by Chinese state media indicate that stockpiles may eventually reach 100,000 metric tons.[xvii]


While the size of the rare earth export industry in China is small, with exports totaling $939.72 million in 2010 or about one-tenth of what China spends on oil in a month[xviii], the market is an important one for clean technologies, electronics and weapon systems worldwide. With China creating its own strategic reserve for rare earths, supplies may only get tighter. Countries around the world are cognizant of their importance and are looking into ways to work around China’s dominance. Time will tell whether China’s dominance will continue.

[i] Institute for Energy Research,

[ii] U.S. Geological Survey, The Principal Rare Earth Elements Deposits of the United States—A Summary of Domestic Deposits and a Global Perspective, p. 15, Nov. 15, 2010,

[iii] The Wall Street Journal, China’s Risky Rare-Earth Gamble, January 13, 2011,

[iv] Daily Mail, In China, the true cost of Britain’s clean, green wind power experiment: Pollution on a disastrous scale, January 29, 2011,

[v] The Wall Street Journal, China’s Risky Rare-Earth Gamble, January 13, 2011,

[vi] Reuters, China defends rare earth quotas as in line with WTO, December 30, 2010,

[vii] U.S. Department of Energy, Critical Materials Strategy, December 2010,

[viii] Bloomberg, Germany, Kazakhstan Forging Rare-Earth Pact, Handelsblatt Says, January 31, 2011,

[ix] New York Times, Europe Moves to Recycle Rare Earths, January 27, 2011,

[x] The Wall Street Journal, China Moves to Strengthen Grip Over Supply of Rare-Earth Metals, February 7, 2011,

[xi] The Wall Street Journal, China’s Risky Rare-Earth Gamble, January 13, 2011,

[xii] Triple Pundit, With Tight Rare Earth Supplies in Mind, GE Developing New Magnet Technology, January 24, 2011,

[xiii] Bloomberg, Hitachi Develops Machinery to Recycle Rare Earths, December 5, 2011,

[xiv] The Wall Street Journal, China’s Risky Rare-Earth Gamble, January 13, 2011,

[xv] Bloomberg, China to Start Stockpiling Rare Earths, Caijing Says, January 25, 2011,

[xvi] The Wall Street Journal, China Moves to Strengthen Grip Over Supply of Rare-Earth Metals, February 7, 2011,

[xvii] Ibid.

[xviii] The wall Street Journal, Rare Earth Quotas: Big Bark, Less Bite, January 19, 2011,

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