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China

The State Development Planning Commission issued the Provisional Regulations on Administration of Foreign Investment in the Rare Earth Industry on August 1 2002. According to this regulation, foreign-invested rare earth projects are divided into three main categories, that is, rare earth mining, rare earth smelting and separation, and rare earth deep processing and application.

Foreign investors are encouraged to invest in rare earth deep processing, rare earth new material and rare earth applied products. Rare earth smelting and separation projects are limited to foreign equity joint ventures and foreign cooperative joint ventures, wholly-owned foreign enterprises are prohibited. Foreign investors are prohibited from establishing rare earth mine enterprises in China. Foreign invested projects in relation to rare earth deep processing, rare earth new material and rare earth applied products are required to be approved by the provincial-level development planning commission (if the total investment is under $30 million) and the State Development Planning Commission (if the total investment is over $30 million) respectively. Rare earth smelting and separation projects must be approved by the State Development Planning Commission no matter how much the total investment. The approval of the relevant foreign trade and economic cooperation commission is also required.

The assets of a Chinese company, which has been directly engaged in rare earth mine production and operation, cannot form part of contributions towards the registered capital of that company should it establish a foreign invested rare earth smelting and separation joint venture with foreign investors.

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