Last week, China announced plans to merge three of its main rare earth metal companies, Minmetals Rare Earth, Chinalco Rare Earth & Metals Co, and China Southern Rare Earth Group Co into a yet-to-be-named company.

Rare earths are elements which are critical for the manufacture of electronic components and high-tech alloys necessary for civilian and defence applications. They are not rare per se, but they are often found in combination with other elements, with the extraction process being expensive and polluting.

Presently, China enjoys a near-monopoly of rare earths, as in 2019 it produced 90% of the world’s rare earths, alloys, and permanent magnets. Also, it has an estimated 36 million tonnes of rare earth reserves, which is around 30% of global reserves. In comparison, the US has estimated 13 million tonnes of rare earths reserves, which is 13% of the global total. Other countries such as Australia, Russia, India, and Brazil also have substantial reserves.

China was not always the world’s leading rare earths producer. Up until the 1980s, 99% of the world’s rare earths supply was provided by the US as a by-product of its mining operations for titanium, zircon, and phosphate. However, due to changes in US regulations, voluntary transfer of intellectual property, and absence of industrial policy, China was able to capture the rare earths market for itself.

Analysts believe that China’s near-monopoly of rare earth metals gives it a trump card in its rivalry with the US for global dominance, and it has shown a willingness to weaponize the trade. China can choose to ban the export of rare earth metals to countries or companies it deems a threat to its interests.

This year, China’s Ministry of Industry and Information Technology last month proposed draft controls on the production and export of 17 rare earth metals that are crucial for the manufacture of US F-35 fighter jets and other high tech weaponry.

Last year, China considered a ban on rare earth exports to Lockheed Martin, Boeing and Raytheon due to US arms sales to Taiwan. Also, in 2010 China enacted a de facto ban on rare earth exports to Japan in response to maritime clashes over the disputed Senkaku/Diaoyu Islands. However, China’s de facto ban was ineffective, as Japan quickly established its own rare earths supply chain.

China’s approach to rare earths is largely driven by domestic factors. It aims to develop green technologies and renewable energy to compensate for environmental damage from rare earth mining. Further, China’s economic strategy to become a technological leader gives it an incentive to dominate the rare earths trade, thereby influencing downstream industries, and in the process strengthening the economic credentials and legitimacy of the ruling Communist Party.

However, China’s rare earth reserves are not infinite. Environmental pollution and increasingly scarce reserves are pushing Chinese rare earth companies to find alternative sources abroad. To that end, China has been increasing its geopolitical footprint for rare earths in Asia, Africa, and Latin America.

Developing countries with substantial rare earth deposits may find themselves in the position of Middle Eastern countries after the discovery of oil in their territories. However, as with oil such situation with rare earths may open a Pandora’s box for these countries.

First, the environmental and social consequences of rare earth mining can trigger further social and political instability in these countries. In Ecuador, China’s strategy of elite co-optation to sidestep social and environmental safeguards has led to protests among the country’s indigenous community.

Second, the revenues from rare earth metals can strengthen autocratic rule. In Myanmar, revenues from the country’s significant rare earth exports to China are allegedly used to fund pro-junta militias in the country’s ongoing insurgency.

Third, these countries can pursue an omni-balancing approach between China and other interested parties, such as the US, Japan, and Australia. Such strategy involves playing one side against the other to ensure that no major player takes control of these countries’ strategic rare earth industries. However, this strategy is inherently risky, as these major players may perceive such approach as duplicity, and eventually assert their interests heavy-handedly.

——by Gabriel Honrada in Asia Times online, Dec 27, 2021 https://asiatimes.com/2021/12/china-closes-ranks-in-battle-for-rare-earth-control/?mc_cid=4c3907539f&mc_eid=a748d84c85