China, which holds more than half of the world’s rare earth resources, recently launched the “Rare Earth Management Regulations (Draft for Public Comments)”, claiming to strengthen the management of the industrial chain. Some analysts believe that this move is to increase the bargaining chip against the United States. What exactly is China’s advantage in rare earths production in the global context? What will be the response of the Western camp once Beijing strengthens the regulation of rare earths?
China’s Ministry of Industry and Information Technology (MIIT) has recently put out for public comment the “Rare Earths Regulations (Draft for Public Comment)”, which has raised questions from the outside world.
In an interview with the Voice of America, Wang Weiluo, a Chinese environmental expert living in Germany, said that China has been implementing policies to strengthen the control of rare earths since the beginning of this century, but the problem is that “there are policies at the top and countermeasures at the bottom”.
State-owned enterprises have merged all the small and large companies and formed several groups, and their production has far exceeded China’s own needs,” Wang said. Although China restricts their exports, but based on their own interests they must export, otherwise no one buys their stuff, and China is to consider the economic growth rate of state-owned enterprises performance, so in the export competition, they put their own prices very low.”
Traditionally, rare earths have been seen as a powerful tool in the eyes of China’s leaders, not only in exchange for huge foreign exchange, but also for their strategic value, Wang said.
Wang said, “Deng Xiaoping’s words, treating rare earths as China’s oil, whoever controls the oil, controls the world. That’s what he thought. Those people in China still believe that rare earths can be used as weapons. That means, your Japanese electronics industry can’t work without my rare earths. Then, I’ll make a deal with you, I’ll trade rare earths for your technology.”
The U.S. imports about 80 percent of its rare earths from China
China is the world’s largest exporter of rare earths, accounting for nearly 63 percent of global production in 2019 and holding nearly 37 percent of reserves, according to the U.S. Geological Survey.Between 2015 and 2018, the United States imported about 80 percent of its rare earths from China.
On the surface it’s a sight to behold, but according to the Financial Times, there are actually hidden concerns about China’s rare earth industry, mainly because the country lacks the cutting-edge technology to carry out high-value-added production.
It sells raw materials, not finished products,” said Wang Weiluo. The part that is raised from inside the soil, it sells. Finishing is China’s weakness. China’s steel production capacity may reach 1.4 billion tons, but it must import special steel, like those companies in Russia and Japan to buy China’s rare materials, mix it, and then re-sell it back as special steel. The intellectual property rights in this area are not in their hands. China also does not pay attention to this aspect of research.”
Environmental expert Wang Weiluo said the global market did rely on China’s rare earth exports in the early years for environmental reasons, but the situation is gradually reversing in recent years.
Wang Weiluo said, “The environmental add-on (cost) of foreign mining is too high. All of a sudden China took it as a weapon, foreign countries are taking national policy subsidies, like the United States and Japan are policy subsidies, foreign countries that would have been economically unavailable to become economically exploitable. Like Australia, like Malaysia, especially like Greenland on the new discovery of rare earth resources, so that China’s rare earth resources proportionally less and less.”
China’s management of rare earths is currently focused on the production phase, such as mine development, smelting or separation. China’s Ministry of Industry and Information Technology recently announced regulations on rare earths (draft for public comment) that seek to manage “the entire supply chain of the industry,” including refining, product transportation and export. Xu Zhen, director of research at the Hong Kong-based Chi Ming Institute, told the Voice of America that rare earths are not only a key raw material for high-tech industries, but also play a big role in everyday Life.
It is widely used,” Xu Zhen said. Rare earths are used in smartphones, computers, or small and large appliances in the Home, as long as they are relatively high cost. That defense technology or brief science and technology, it is not a wide range of issues, but a necessary issue, such as the warship’s radar or combat system, its detection distance, how sensitive it is, involves rare earths. Rare earths are indispensable materials, whether they are mechanical components or electronic software.”
China’s rare earth industry advantage is not sustainable
The new regulations oblige companies to comply with control regulations on the import and export of rare earth minerals, and authorities can invoke the export control law introduced last December to strengthen their control over the flow of strategic materials.
Xu Zhen said, “China’s massive export of rare earth resources two or three decades ago was mainly caused by China’s huge demand for foreign exchange and the huge gap between its economic development level and that of foreign countries. China’s so-called overwhelming advantage in rare earth exports over the past two or three decades is actually beyond its own advantage in various rare earth deposits, which means that this overwhelming nature itself is not sustainable. The proportion of China’s exports exceeds its proportion of the world’s overall reserves. China’s dependence on foreign exchange has been significantly reduced. China has other means to get foreign exchange.”
Jin Canrong, vice dean of the School of International Relations at Renmin University of China, wrote an article two years ago describing the ban on rare earth exports to the U.S. as one of China’s Trump cards to defeat the U.S. But Xu Zhen believes that limiting rare earth exports won’t help the situation much in the long run.
The development of rare earths will directly pollute water,” Xu Zhen said. In China, where water is still in short supply, it is an objective fact that awareness is high in this area, which I think is the core reason. As for whether it will use this means to negotiate with the West? I think the West is not without rare earth resources, such as the United States, Australia or some South American countries, their rare earth reserves, especially per capita reserves, higher than China, especially the United States itself.”
Xu Zhen believes that there are more important considerations for China to tighten its rare earth exports than to counter the U.S.
Xu Zhen said: “My logic is very simple, is that it was too much development, is unreasonable much, so now it is reduced, is it to negotiate with you? I don’t think so. And from the point of view of China’s interests, these rare earths exported, eventually turned into a lot of armaments including the sale to Taiwan, China will also count ah. I earn you a little bit of money, and eventually these things become weapons. Will my loss be greater?”
The Nihon Keizai Shimbun reports that the U.S. is moving to reduce its dependence on Chinese rare earths, including establishing a rare earth processing plant in Texas with Australia, while Japan is also seeking alternative supplies of rare earths.
Xu Zhen said, “The U.S. and Japan, especially Japan, have done a very good job of crisis awareness, especially Japan has no resources, so Japan’s rare earth reserves are even larger than mainland China. The situation in the United States will be relatively more problematic, because the scale of cutting-edge technology in the United States is much larger than Japan. If China’s exports to the United States are tightened, it is likely that the annual reduction of a few percent is already very strong. The United States and Japan will at best only cause fluctuations, harassment.”
The “rare earth card” accelerates supply chain separation
Wu Qiang, a former lecturer at Tsinghua University’s political science department, believes that it is indisputable that China is playing the “rare earth card” to the United States.
In an interview with Voice of America, Wu said, “It’s an open secret that Beijing uses rare earth resources as a strategic bargaining chip in the U.S.-China competition and in Sino-European relations. It may offer concessions to Europe and may use a realistic approach to the United States to compete.”
Wu Qiang said a ban on rare earth exports to the U.S. would only accelerate the separation of the respective U.S. and Chinese supply chains, further stultifying the current dysfunctional U.S.-China relationship and doing little to help China in the long run, and further isolating China from the globalized supply system.
It will indeed have a very subtle impact on globalization, leading to a divergence in the use of rare earths and accelerating the alliance or bifurcation of the world’s advanced countries politically or in terms of values, and the choice of supply of these rare earth resources will also diverge,” said Wu Qiang. It will determine the new geopolitics in the future,”
And according to the Global Times, the Rare Earth Management Regulations (draft for public comment) mainly hopes to regulate China’s domestic production and operation order, and although it mentions restrictions or cessation of mining and smelting, it still welcomes overseas high-tech industries to China. However, the regulation is currently in the consultation stage, and the deadline for feedback is February 15.
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