New Tax May Have 'No Great' Impact on Chinese Rare Earth Industry: Expert

China started increasing the resource tax on rare earth exports from April 8, 2011 with a level 10 times higher than the current standard.

According to a statement jointly issued by the Ministry of Finance and the State Administration of Taxation last week, the resource tax on light rare earths will be lifted to 60 yuan ($9.1) a ton. The tax on mid-heavy rare earth products will be increased to 30 yuan a ton, while the current taxation only levies 0.5-3 yuan per ton or cubic meter.

The newly-introduced tax will increase production costs for rare earth miners, but as Tsinghua University's professor Mike Bastin said, the impact on domestic producers will not be as great as expected.

"Well, certainly it will impose an increasing annual production cost, but that will be offset with the soaring profits that have been made. So the actual impact in cost may not be that great."

The expert said the new rules will help promote consolidation in the market. Some small-and-medium enterprises will be driven out of the industry, while companies in other countries will step up to the plate.

"The Americans are in full operation to set to start the U.S. mine next year. Molicorp has secured permanent founding in California, and this is seen as a fairly major development."

As the world's largest rare earth producer and exporter, China has adopted a series of policies to balance environmental protection with industrial demands. The tax on extraction of rare earths is among them.

China supplies more than 90 percent of the global rare earth demand. However, its reserves account for about one-third of the world's total.

Bastin said the launch of new rules reflect the government's positive attitude toward environmental protection and sustainable development.

"It's another move by the Chinese government to understand the importance of protecting the environment and sustainable economic growth. So, certainly this is a very good move for long-term development of Chinese economy and the protection of the environment."