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China, 'Rare Earth' Metals And The Need For
Industrial Restructuring In The West

By Dr. Peter Custers

02 November, 2010

The row started with a minor incident which apparently was not directly related to the international uproar that followed it. On September the 7th last, a Chinese trawler collided with a boat of Japanese coastal guards not far from the Senkaku archipelago, located to the North-East of Taiwan. Presently under Japanese control, - sovereignty over this group of islands has been claimed by China ever since the 1970s. In the wake of the incident, the Chinese captain of the trawler was detained by Japan, which evoked an angry reaction from China. Yet the diplomatic row between the two Asian giants was not limited to mutual re-assertion of claims over the Senkaku islands alone. By September the 20th, international media reports stated that Chinese ports had informally blocked the transportation to Japan of ‘rare earth’ metals which are crucial in the production of high-tech goods. And although China has subsequently denied that it is bent on using its influence over the world market of these raw materials for political ends, - worries among foreign companies using the metals and among international speculators have not subsided even now. In fact, the incident has sparked worldwide nervousness. According to leading Western newspapers, during the second half of 2010 China has reduced its exports of rare earth-metals by 70%. Moreover, China itself has announced that in 2011 it will be forced to further restrict these exports, as part of a policy aimed at securing provisions for China’s own industries using the metals.

What then is the real, the larger story behind this row? Has China started challenging a form of dominance which the West for many centuries has sought to preserve, i.e. exclusive or privileged access to strategic raw materials? First, a brief note on the meaning of ‘rare earth metals’. Just a year ago, the term had hardly ever been coined in the world press. Rare earth metals are a group of some 17 metals which share chemical properties that put them apart from the minerals traditionally used in large quantities, such as copper and steel. They reportedly appear in the earth’s crust much more frequently than the term ‘rare earth’ suggests, but are not generally extracted separately. Instead, they are usually mined along with mass minerals and are then separated chemically. Modern industries - ranging from factories manufacturing mobile phones, computers and flat screen televisions, to companies producing solar panels and windmills, as well as armament corporations - are highly dependent on rare earth metals. The total amount extracted and sold today is some 125 thousand tons. But worldwide demand is growing by 10% per year. And China, as all reports agree, alone holds the key, being responsible for the extraction of as much as 98% of the total! In the case of neodymium for instance, a rare earth metal required to manufacture modern windmills, China supplies 98%. China is also a leading supplier of indium (60%) and of gallium (83%), two raw materials employed towards production of solar panels.

Now one might think that China’s monopolistic position is an accident of history or Nature’s gift. But this is far from the case. In fact, while the size of China’s stocks of proven reserves is stated to be from a third to half of the world’s total, other leading world powers hold sizeable quantities below their soil too. So does a country as such Kazakhstan. The present structure of the world’s trade in rare earth metals appears to be both the outcome of a conscious Chinese strategy, and of a lack of foresight among China’s main competitors. First, China has targeted the extraction of these metals since the seventies, when the country’s then ruler Deng Hsiao Ping declared that the 17 rare earth metals in the future could have the same significance for China, as crude oil holds for the Middle East. Since then, China’s government has developed large mining operations, sacrificing the health of its workers and emitting radioactive and other waste, primarily in the region of Inner Mongolia. Moreover, whereas in various other sectors private companies can freely function, - the mining of rare earth metals is controlled by a few large state enterprises, notably by Bautou Steel. A revealing essay which has just appeared in the November issue of the progressive French monthly Le Monde Diplomatique well explains the Chinese strategy. In the context of a rapidly expanding domestic market for computers and other high tech goods, China seeks to reserve a part of its stocks for its own future needs by putting restrictions on the exportation of the rare earth metals.

Again, whereas China’s present monopolistic position is partly the outcome of capitalistic foresight, - it is also an effect of prolonged Western acquiescence. During this last year, i.e. well before the incident near the Senkaku archipelago occurred and the informal suspension of exports of rare earth metals to Japan started, American civilian think tanks and research centers connected to the US army have brought out reports detailing the enormous dependence of high-tech companies and the armaments’ industry in the US on China’s supplies of rare earth metals. The flutter of reports does not just confirm that China has achieved an overall strategic position vis-à-vis US industries which parallels the US’s dependence on China’s investments in bonds of the US Treasury. The reports also expose the fact that in the era of neo-liberalism domestic extraction of rare earth metals in the US has simply been neglected. Historically, i.e. until the era of Deng Hsiao Ping, world extraction of these metals was reportedly dominated by the US. Yet once China expanded its supplies of these metals to the world market, interest in sustaining extraction in the US fell, basically because Chinese imports of the same materials were relatively cheap. Extraction in Mountain Pass, the US’s most well known mine for rare earth metals, was closed down and its workforce dismissed, as US high-tech industries preferred to rely on easily available imports.

What then is the morale of the above story? One wonders whether it has previously happened in history that Western powers more or less willingly acceded to non-Western control of raw materials that are of strategic value for their own defense- and other leading industries. At the US Capital, as also in Brussels, policymakers are frantically searching for an answer to the production dilemmas which China’s export restrictions may soon pose. Thus, US policymakers have been discussing a rare earth ‘Revitalization Act’, and the Mountain Pass mine reportedly will be re-opened soon. Yet perhaps true foresightedness demands a redirection of Western policymaking in an entirely different manner. For the flipside of Western dependence on Chinese production of consumables these last few years has been the ´dumping´ in China of computers and other info-tech which have outlived their use for Western consumers. No ships bringing consumables to the US return to China without containers being stuffed with US end-waste. And rates of (domestic) recycling of many rare earth metals in many cases are just zero. Perhaps, then, the only proper answer to China´s growing reticence to export rare earth metals is not outrage, but a new resolve to transform industrialized economies? In my view, the only human and environmentally responsible answer - both to growing limitations in international supplies and to the future exhaustion of rare earth metals – is a conscious choice by the West in favor of greatly expanded domestic recycling, and in favor of other steps towards industrial conversion that are overdue. (1)

Dr. Peter Custers
Leiden, the Netherlands, November 1, 2010


See also Peter Custers, ‘The Tasks of Keynesianism Today: Green New Deals As Transition Towards a Zero Growth Economy?’ (New Political Science, Volume 32, Number 2, June 2010, p.173); a recent British academic report on the lack of recycling of rare earth metals is discussed by Paul Benkimoun, ’Les Elements Rares, Une Ressource Trop Peu Recyclee’ (Le Monde, October 27, 2010);