Resource tax on rare earths in China: Policy evolution and market responses

Abstract

Rare earths (RE) are critical minerals that are used for economic development. Because it has become increasingly important and widely used, the resource tax has been implemented to solve the negative externality of RE exploitation in China. The resource tax on RE in China has evolved over time and includes three stages: 1) establishment (1993–2010), 2) quantitative changes (2011–2014); and change to a volume-based system and qualitative changes in the ad valorem system (2015 to the present). A computable general equilibrium (CGE) model was developed, and the results show that resource tax reforms would increase the price of RE and curb their production and demand. However, these theoretical market responses were short-lived in reality. For the resource tax reforms to have long-term effects, we must also consider factors such as illegal exploitation, the development of China's domestic RE downstream industries and the emergence of RE alternative products. Finally, additional policies should be formulated that are coordinated with existing policies regarding the resource tax.