What’s in Store for Rare Earths in China’s Upcoming 5-Year Plan?

Feb. 28, 2016

Transitioning to economy led by services and domestic consumption

On March 5th the 2,943 delegates comprising China’s National People’s Congress will gather in Beijing to ‘say yes’ to the party leadership’s new five-year plan.

As noted recently in the Globe and Mail, “China’s leaders are attempting to engineer a difficult transition away from an investment-driven economy dependent on heavy industry, cheap exports and infrastructure spending to a more sustainable model fueled by domestic consumption, higher-value manufacturing and a considerably expanded service sector”.

Unclear how fast China can realize aspirations or what toll it will take on growth

Towards realizing this plan, the government has been criticized for not enacting more aggressive reforms and for standing idle while industrial capacity in the nation continues to mushroom. It’s unclear exactly how fast China can realize its lofty aspirations, or what toll it will take on the nation’s economic growth in the near-term, but given the focus on value-added manufacturing and expansion of domestic consumption, we can begin to speculate on what’s in store for China’s rare earth industry under the new five-year plan.

Emphasis on production of high-value-added products, product standardization, and ‘greening’ of domestic processing industry

In terms of rare earths, we believe the plan will place major emphasis on production of high-value-added products, product standardization, and ‘greening’ of the nation’s rare earth processing industry.

We expect the plan to incentivize and support greater production of high-value-added products, such as laser crystals, optical fiber, phosphors for LEDs, high-grade permanent magnets, and high-value alloys and ceramics.

We foresee a government-led mandate for standardization of commonly traded rare earth products – standards that will prescribe thresholds for product purity and impurity levels – in order to ease concerns of otherwise-wary Western importers.

Finally, we expect the upcoming five-year plan to incentivize or mandate the research, development, and adoption of more environmentally sustainable rare earth mining and processing methods.

 

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