BEIJING China's dominance of rare earths used in high-tech products has aroused growing international attention after reports that the government has been choking off shipments, possibly out of political pique.
Here is an explanation of the issue and why it matters.
WHY ARE CHINA'S RARE EARTHS IMPORTANT?
The computer you're possibly reading this on almost certainly contains rare earths, a set of 17 minerals with magnetic, luminescent and other properties that make them useful in hard drives, magnets, lasers and other gadgets important in computing, clean energy and military applications.
Rare earths are relatively common in the ground but are much more scarce in concentrations that make mining them worthwhile.
China produces about 97 percent of the world's rare earths, and that means its policies in the sector ripple across the world. China mined about 120,000 tonnes in 2008.
It has about 36 percent of the world's known exploitable reserves of rare earths. Since the 1990s, Chinese miners and processors have massively expanded production while foreign competitors in the United States and elsewhere have shut down.
China's dominance has been helped by state support, together with relatively low wages and loose regulation of environmental damage caused by mining and processing rare earths.
HAS CHINA BEEN BLOCKING EXPORTS?
Reports in the New York Times have said that China cut some shipments of rare earths to Japan, possibly out of anger over a sea territory dispute.
The reports have also cited industry sources as saying China may have taken similar steps against the United States and Europe after Washington launched a trade investigation into Chinese state support for clean energy technology.
China does not have a history of using its economic sway as a blunt political weapon, and nor does it have many resources it can withhold. Perhaps that is changing.
The difficulties some foreign purchasers have had may have arisen from China's stricter enforcement of export quotas and related measures, not out of pressure for political ends, said Gareth Hatch, the founding principal of Technology Metals Research, an Illinois-based company that follows the sector.
China has said it has been alarmed to see its rare earths reserves being mined so voraciously and then sold abroad at prices that it says do not reflect the metals' real importance and the environmental cost of processing them.
That push to control exports has been stoked by China's efforts in green technology, where rare earths can be used to make more efficient batteries, wind turbines and other technology.
It has been imposing stricter controls on mining and cracked down on unlicensed mining and smuggling.
Beijing has introduced export duties and quotas for rare earths. This year it steeply cut export quotas so total exports for 2010 will be about 40 percent below 2009 levels. For the second half of the year they will be 72 percent below levels in the second half of 2009.
"I have heard of a handful of consumers of rare earths outside of China have had a challenge acquiring certain materials -- samarium would be one, used in permanent magnets; compounds of lanthanum and cerium would be others -- used in a variety of applications," Hatch wrote in an email.
"But this has been driven by the traders not wanting to ship lower value light rare earths, in favor of the heavier, more-valuable stuff. Most other folks I've spoken to have not mentioned any issues, beyond grumbling about the price," he wrote.
WHAT DOES CHINA WANT TO DO WITH ITS RARE EARTHS?
The government wants to get into more profitable higher-end production and to nurture homegrown industry champions.
China is also pushing to become a major force in green technology in which rare earths are an important ingredient.
Restricting exports will force foreign companies to buy more of the completed products containing rare earths from China until other countries increase their own production. Beijing's quotas do not apply to finished products.
WHAT ARE THE IMPLICATIONS AND WHAT COULD HAPPEN?
China's push has ignited economic and geo-political jitters.
One worry is that Beijing's chokehold on exports could hurt foreign companies and drive up international prices.
Hatch said some purchasers were "aghast at the current pricing as it puts them at a terrible price disadvantage compared to their competitors based in China."
A more distant worry voiced by some in Washington is that China could cut off the United States and other potential rivals of access to minerals used in military equipment.
Chinese officials from Premier Wen Jiabao down have said that their government is not using its rare earth as a political weapon.
Last week officials denied a Chinese newspaper report that China would cut quotas by 30 percent next year.
Industry players will be waiting to find out what quotas Beijing will set in place next year and beyond, and also want a finer sense of how the quotas will work.
Already some governments have said foreign companies should not be so dependent on China for such an important ingredient.
Mining outside China that offers access to rare earths could benefit from this push, including in the United States, Vietnam, South Africa, Australia and Canada.
But mining rare earths is the easy part. The more difficult and expensive part is separating and processing the minerals so they can be used for final applications.
Governments and companies will have to decide whether they are willing to pay for that capability. It could be very expensive and take years to set up such production facilities.
(Sources: Reuters; Gareth Hatch, Technology Metals Research; U.S. Government Accountability Office, "Rare Earth Materials in the Defense Supply Chain"; John Seaman, "Rare Earths and Clean Energy"; U.S. Congressional Research Service, "Rare Earth Elements: The Global Supply Chain")
(Reporting by Chris Buckley; Editing by Ken Wills and Jonathan Thatcher)