Wealth Effects of Rare Earth Prices and China’s Rare Earth Elements Policy

Maximilian Müller, Denis Schweizer and Volker Seiler
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Maximilian Müller: WHU – Otto Beisheim School of Management
Denis Schweizer: Concordia University [Montreal]

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Abstract: Rare earth elements (REEs) have become increasingly important because of their relative scarcity and worldwide increasing demand, as well as China's quasi-monopoly of this market. REEs are virtually not substitutable, and they are essential for a variety of high-tech products and modern key technologies. This has raised serious concerns that China will misuse its dominant position to set export quotas in order to maximize its own profits at the expense of other rare earth user industries (wealth transfer motive). In fact, export restrictions on REEs were the catalyst for the U.S. to lodge a formal complaint against China in 2012 at the World Trade Organization (WTO). This paper analyzes possible wealth transfer effects by focusing on export quota announcements (the so-called MOFCOM announcements) by China, and the share price reactions of Chinese REE suppliers, the U.S. REE users, and the rest of the world REE refiners. Overall, we find limited support for the view of a wealth transfer in connection with MOFCOM announcements only when disentangling events prior to and post the initiation of the WTO trial, consistent with the trial triggering changes to China's REE policy and recent announcement to abolish quotas. We do find, however, that extreme REE price movements have a first-order effect on all companies in the REE industry consistent with recent market trends to enable hedging against REE price volatility.

Keywords: Announcement effects; Event study; Export quotas; Rare earths elements; World trade organization (search for similar items in EconPapers)
Date: 2016-11
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Citations: View citations in EconPapers (1)

Published in Journal of Business Ethics, 2016, 138 (4), pp.627-648. ⟨10.1007/s10551-015-2773-3⟩

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Related works:
Journal Article: Wealth Effects of Rare Earth Prices and China’s Rare Earth Elements Policy (2016)
Working Paper: Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy (2015)
Working Paper: Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy (2015)
Working Paper: Wealth Effects of Rare Earth Prices and China's Rare Earth Elements Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04079132

DOI: 10.1007/s10551-015-2773-3

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