China closes in around its rare earths
By Antoaneta Becker
LONDON - 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 helped to precipitate the collapse of
the Chinese empire.
The international furor 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 close to
a monopoly on supply of the metals, is cutting back on exports, citing industry
restructuring and environmental concerns.
Beijing slashed export quotas this year by around 40% 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% 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 a
recent editorial in the 21st Century Economic Herald newspaper.
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 unauthorized 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 tonnes of rare earths
were smuggled out of China, accounting for nearly one-third of the metals'
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 standardize 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% 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%, 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 iPods, 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. US Secretary of State
Hillary Clinton said in Hanoi at the end of last month 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 Group of
20 summit of major economies in Seoul this week. Business lobbies from the
United States, Japan and other rare earth consumers have urged the group to
make unfettered access to valuable rare earths "a top priority".
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