Explainer: Why Beijing cut the tax rate on rare earths amid the escalating US-China trade war
- Industry observers say the move is meant to boost production, make it economically feasible to exploit low-grade deposits and maintain the country’s edge in the sector
- A lower tax rate of 20 per cent on miners of heavy rare earths takes effect from September 2020
Last month, the Chinese government cut the resource tax on companies mining heavy rare earths to 20 per cent from 27 per cent, as part of its efforts to support the vital sector and maintain the country’s dominance amid a raging trade war with the US.
The Post spoke to a number of industry observers, who agree that the latest policy move, which takes effect next September, is meant to boost production and make it economically feasible for miners to exploit low-grade deposits.
Right now, the cost for a Chinese company producing a basket of separated rare earths, including feedstock, is more than 150 yuan. And the selling price averages around 175 yuan per kg, leaving a very slim profit margin after taxes.
The tax will hardly affect light rare earths, with a barely noticeable change in levy ranging from 7 to 12 per cent, from the earlier 7.5 per cent to 11.5 per cent.
How China could weaponise its rare earth supply in a trade war
There are 17 rare earth elements – split into light and heavy – that are used widely in smartphones, electric cars, wind turbines and even weapons. And because of China’s stranglehold on the sector – accounting for nearly 70.6 per cent of global production – there are fears that Beijing could use the strategic materials as a bargaining chip in the trade war negotiations with Washington by curtailing exports to the US and impacting the sectors that rely on rare earths.