China-to-FOB price transmission in the rare earth elements market and the endof Chinese export restrictions

Photo : China-to-FOB price transmission in the rare earth elements market and the endof Chinese export restrictions

Rare earth elements (REEs) are important forvarious consumer electronics such as smartphones, CD and DVD players. More importantly, REEs are essential forthe exit from fossilenergy and the transition towards a low-carbon economywith applications ranging from clean energy tech-nologies such as wind turbines, photovoltaic cells, and hybrid and electric vehicles.Chinais the number one provider of REEs to the rest of the world and thus has a quasi-monopoly.

Further-more, until the official abandonment of itsexport quota policy in January 2015, the Chinese Min-istry of Commerce (MOFCOM) heavily intervened in the REEs market using non-tariff barriers, export quotas in particular.One of the most prominent features of the REEs market is a dual pricing structure with much higher export (FOB, free on board) prices compared to domesticprices(inside China), thereby creating incentives for companies to shift production to China in order to benefit from this cost advantage and get access to REEs.

In order to assess whether MOFCOM has used the export quo-ta policy to strategically manipulate prices, we focus on the domestic-to-export price transmission mechanism and whether that changed afterthe end of the export quota scheme. Moreover, we control for potential price transmission asymmetries, so-called rockets-and-feathers behaviour with export prices immediately reacting to increases of domesticprices but only gradually adjust-ing to price decreases.

The results show thatshocks are absorbed muchquicker after the end of the export quota scheme. Besides, the magnitude of deviations from the equilibrium between export and domestic prices necessary to trigger price adjustments is much smaller. This indicates that export prices became more sensitiveto changes of domestic prices after MOFCOM ceased to regulate the market usingexport quotas.However, we do not find evidence for asymmetric price transmission of the rock-ets-and-feathers type.

The full paper is available here.

Author(s)
  • Photo :

    Volker Seiler Volker Seiler is associate professor in finance. He joined EM Normandie Business School in 2020. He has a PhD in finance from the Univeristy of WHU, Otto Beisheim School of Management awarded in 2011. His thesis in on the customer satisfaction in private banking. His research interests lie in the intersection of finance and economics with a recent focus on the empirical analysis of commodity markets (especially rare earth elements)

Photo : Barriers to sustainable food consumption and production in China: A fuzzy DEMATEL analysis from a circular economy perspective

Barriers to sustainable food consumption and production in China: A fuzzy DEMATEL analysis from a circular economy perspective

The global agri-food sector is in a dire need of transitioning into sustainable consumption and production patterns. The circular economy concept offers a viable pathway to improve resource efficiency and recover value from food loss and waste. Although China has made circular economy a strategic component of its national development strategy, it has faced multiple barriers […]

Read More

Photo : Antecedents of social sustainability noncompliance in the Indian apparel sector

Antecedents of social sustainability noncompliance in the Indian apparel sector

Consumers expect global apparel suppliers to adhere to strict social sustainability standards following several deadly noncompliance incidents. This study provides a unique contribution to social sustainability governance by utilizing a causal-effect analysis to classify noncompliance antecedents into causal and effect groups and analyze the interactions. Combining a structured Delphi technique, involving thirty senior manufacturing professionals […]

Read More