China says illegal rare earth production still rife

BEIJING Thu Jan 9, 2014 1:50am EST

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BEIJING Jan 9 (Reuters) - Illegal mining, pollution and smuggling remain rife in China's rare earth industry despite a two-year campaign to straighten out the sector, a government official said in remarks published on Thursday.

China, which produces more than 90 percent of the world's rare earth elements, has been trying to impose order on the industry, seeking to consolidate output in the hands of big state-owned miners and imposing strict production and export quotas on a small number of authorised firms.

The 17 rare earth elements are used in a wide range of applications in sectors like renewable energy, telecommunications and defence.

The United States, Europe and Japan have complained to the World Trade Organisation that the restrictions give Chinese firms in key high-tech sectors an unfair competitive edge, but Beijing says big producing regions like Inner Mongolia should not have to suffer environmental damage in order to supply large volumes of rare earths for the global market.

Su Bo, China's industry vice-minister, told a meeting of rare earth companies that despite a long campaign to improve the way the sector is regulated, illegal behaviour continues as a result of "local government protectionism" as well as a failure to properly implement laws and regulations.

According to a statement posted on the website of the Ministry of Industry and Information Technology (www.miit.gov.cn), local governments have been ordered to crack down harder on illegal activities, and tightened rules for the sector would be released soon.

Last week, one of the six firms entrusted with consolidating the sector, the Inner Mongolia Baotou Steel Rare Earth Group , announced that it had acquired nine regional mining companies after signing an agreement with the local government.

The ministry statement said the six firms -- which also include state giants Minmetals and Chinalco -- would continue to take over smaller rare earth producers and play a leading role in the sector's ongoing reorganisation. (Reporting by David Stanway; Editing by Richard Pullin)

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