Arafura Rare Earths Ltd, page-1083

The Chinese gov' stick and the subsidy carrot! , Like it or not, the ROW is taking lessons.

Abstract:

Rare metals stand as a crucial cornerstone for the advancement of strategic emerging industries. In order to foster high-quality development of the rare metals sector， China enforces a system of total control management over rare metals， while steadily enhancing a reserve system that integrates physical reserves with mineral deposit reserves. Among these measures， commercial （enterprise） reserves constitute a significant approach to the physical reserves of rare metals. This paper， taking rare earths as an example， conducts mathematical modeling and decision analysis under stochastic demand for two types of commercial reserve models: the "policy-guided" model （where government guides firm’s reserve decisions） and the "subsidy-incentive" model （where the government incentivizes reserve decisions through subsidies）. The results show that in the "subsidy-incentive" model， the reserve quantity， the market price and the firm’s expected profit are higher， while the expected sales volume， the government’s expected profit， the consumer’s expected surplus and the social welfare are lower. The influences of the total quota index， the unit reserve subsidy， the market size， the unit reserve revenue/cost， and the price sensitivity coefficient of rare earth products on the decision results are also investigated. This study provides several managerial implications for rare earth firms on the joint optimization of rare earth reserve and pricing， and for governments on the enhancement of rare earth supply chain performance through total quota management and reserve subsidies.