China Closes In Around its Rare Earth

By Antoaneta Becker Reprint | | Print |

Analysis by Antoaneta Becker

LONDON, Nov 6 2010 (IPS) - The western world sees China erecting trade walls. But China sees a throwback to an era of plundering and forceful western politics that followed the Opium wars of the 19th century and precipitated the collapse of the Chinese empire.

The international furore over China’s grip on rare earth metals has yet again pitched against each other two starkly different views of China as a belligerent new world power and a victim of international bullying.

Just as demand for rare earth elements needed to produce sophisticated electronics is exploding, China, which has a monopoly on supply over the metals, is cutting back on exports, citing industry restructuring and environmental concerns.

Beijing slashed export quotas this year by around 40 percent from 2009 levels, saying it must protect its reserves that have been recklessly exploited over the past 20 years. Government officials contend that with one-third of the world’s known reserves of rare earths, China has satisfied more than 90 percent of the world’s need for those elements.

“China is the land of rare earths in the same way that the Middle East has oil and Australia has iron ore. But China has not enjoyed the handsome profits that those countries have ripped from their control over precious resources,” said an editorial in the 21st Century Economic Herald newspaper last week.

Beijing holds that its former lack of industry oversight and low environmental standards have led to rampant exploitation, smuggling and undervaluation of the rare earth metals mined in the country.

Some of the metal ores have been undervalued on global markets by a large margin due to the operation of unauthorised Chinese mines where the cost of complying with environmental standards is low or non-existent. Smuggling has been another factor.

According to Chinese media reports, in 2009 some 20,000 tons of rare earths were smuggled out of China, accounting for nearly one-third of its exports that year.

Industry officials are indignant that China is being pressured by western nations and Japan to relax its export controls while it is trying to put its own house in order. They say plans to standardise the industry have been afoot since 2004. The government has published guidelines for the industry development, which require the gradual reduction of annual exports by 10 percent every year beginning 2006. “China’s rare earths face the awkward situation of being carved up by the world’s big powers,” said an editorial in the International Business Daily, the mouthpiece of the Ministry of Commerce last week.

The mood in the press has been one of defiance, with some opinions talking about “the war in commodities” and urging the government to stand up to the West’s bullying and “say no” to demands for lifting the export controls.

But to many it is not simply a case of industry restructuring as inexplicably exports this year were slashed by as much as 40 percent, leaving many companies on the receiving end stranded. Disruptions of shipments to Japan, in a territorial row with China, have raised the prospect that Beijing is using its monopoly on supplies for political leverage.

Economic nationalism has been palpable in recent statements by trade officials too. “The government should use our advantages in resources and production of rare earths as a sally port to establishing China’s pricing power in global commodities markets,” Mei Xinyu, a senior official with the ministry of commerce regarded as China’s guru on international trade was quoted as saying.

The importance of these rare metals for every aspect of 21st century life is said to have been spotted long ago by Deng Xiaoping, the mastermind of China’s economic reform. “The Middle East has oil, China has rare earths,” Deng said during a tour of China’s export zones in 1992 while still charting the country’s path to becoming the world’s manufacturing workshop.

The group of 17 metals with magnetic, luminescent and other properties are vital for the production of a range of modern gadgets and for the advance of green technologies. They are to be found in i-Pods, smart phones, wind turbines and electric cars. Some of the metals like samarium are used in missile guidance systems.

China lacks the technology necessary to produce many of these high-end products and inside the country the metals are used mainly for permanent magnetic materials.

Beijing’s export curbs have drawn speculation that they are meant also as a tool to force foreign companies to move production of sophisticated electronics to China. The blueprint for China’s next five-year economic plan focuses on how the country can move up the production chain.

Beijing has repeatedly denied that it would use its dominance of this crucial industry as a “bargaining tool” with rival nations. Hillary Clinton, U.S. secretary of state, said last week in Hanoi that she had received assurances from her Chinese counterpart, Yang Jiechi that Beijing had “no intention of withholding these minerals” from the world market.

Nevertheless, the issue will feature prominently on the agenda of the G20 summit of major economies in Seoul next week. Business lobbies from the United States, Japan and other rare earth consumers have urged the G20 group to make unfettered access to valuable rare earths “a top priority”.