Abstract: As the largest countries of rare earth supplier,China lacks the control of rare-earth prices.The thesis is written with three angels as the starting point,including supply,demand and cost.Regarding the market,firm,industry,government as the main subject discussed,narrating the formation of the rare earth completely.Getting the conclusion that the reason for supply imbalance is due to the lack of games capabilities.The short-term price of rare earthis determined by the rare earth reserve capacity.Demand for rare earth is the determined factor of long-term price trend.The production cost of rare earth is much higher and the environment cost is not reflected on the current rare earth price.At last,we get the corresponding strategies that China should adopt to improve the reserve system,establish the early warning mechanism of price,develop the upstream product of rare earth,sound the environmental regulations of rare earth industry etc,duo to the formation mechanism of price for rare earth.