Last night I was invited to appear as a guest on CCTV’s World Insight current affairs show along with John Seaman, a research fellow with the French Institute of International Relations in Paris and Prof. Huo Deming of the China Center for Economic Research at Peking University.
The subject we were discussing was the importance of rare earth metals and particularly the ongoing debate over China’s recent moves to limit exports of these elements, which are crucial to a range of day-to-day electronic devices like cell phones and laptops as well as defence systems such as radar and missile guidance systems.
China currently supplies more than 95 percent of the world’s output of these 17 metals, despite only having about a third of the world’s reserves. This hadn’t really seemed like a big issue to most commentators until China decided to halt exports to Japan at the height of the spat in September over a detained Chinese trawler captain.
Chinese officials at the time denied that an official embargo had been put in place, although as Paul Krugman noted in a column entitled ‘Rare and Foolish’ that outraged Chinese netizens and commentators, it’s difficult to believe that dozens of Chinese exporters all simultaneously took it upon themselves to halt exports to Japan.
All of us agreed that, in principle, China does have the right to exploit its own natural resource as it sees fit, much as OPEC member nations do with oil. But there’s an important caveat. If China is, as it claims, tightening regulations and exports as it toughens up environmental standards (and the effects of the country’s extraction of these metals has had a devastating effect on the environment) then I have some sympathy for the Chinese position.
However, as former WTO judge James Bacchus has noted, China may find it difficult to defend its restraints if the US files a complaint. Bloomberg quoted Bacchus as saying last month: ‘What makes China vulnerable is the accession agreement it signed’ to join the WTO.
The Diplomat will be running an in-depth feature on the rare earth issue later this week, so I won’t go into too much detail about possible responses on the part of countries like the United States and Japan. But one point I made last night was that regardless of China’s ‘right’ to decide how it exports its own resources, it has scored a diplomatic and potentially economic own goal with its itchy diplomatic trigger finger.
By squeezing Japan so quickly and with such overwhelming force, China played into the developing narrative of its being a regional bully. One of the other panellists suggested that the exports issue is being unfairly conflated with the territorial issue by the media—that it was all just bad timing. But as I pointed out, perceptions matter, and it showed a remarkable naiveté on the part of the Chinese government if they couldn’t see this.
It also may well prove an economic tactical error. By turning to exports to pressure a major importer, China has set alarm bells ringing around the world, and governments everywhere are now scurrying to strike deals with alternative suppliers. Japan’s government and companies have already been talking with Canada, India and Kazakhstan among other countries, and a number of bills have appeared in the US Congress pressing for action to reduce US dependence on China.
Indeed, the Indian pledge to work more closely with Japan on this and other issues—made last month at a summit-level meeting between Indian Prime Minister Manmohan Singh and his Japanese counterpart Naoto Kan—must surely concern Chinese officials, who presumably won't have wanted to push China's two many regional rivals closer together.
Of course, there’s no quick solution for most nations hoping to bring their own supplies of these (actually not so rare) elements online, so in the short term at least, China’s monopoly is here to stay. But China has managed to shift an issue getting little attention outside specialist circles to one that has grabbed headlines and the attention of policymakers the world over.
Reddit
Digg
StumbleUpon
Delicious
Technorati
Yahoo
Google
Plurk
John Chan
“China has set alarm bells ringing around the world, and governments everywhere are now scurrying to strike deals with alternative suppliers.” It is a welcome sign to China, that the world finally makes an effort to find additional sources of rare earth. So China does not have to exhaust its rare earth in an alarming rate, and China can clean up the illegal rare earth mining once the demands on its rare earth subsided.
No nation becomes great power by appeasing somebody else. In history, the fate of becoming great powers, such as Romans and GB, was forced upon them by the existing bullies. Elisabeth I faced hostile and powerful neighbors including Vatican. She was triumph despite the incredible odds against her small nation and its weak position, in the end Britain became a no sunset empire. Elisabeth I is a good example for China to face the challenges now and ahead. China must do what is good for its people and for itself.
Don
First off, a trigger-happy China is always quick to file WTO complaints against others. The US should absolutely file a WTO complaint and let it pan out. Going easy on China is not going to make them less belligerent.
A US Government Accountability Office report mentions Mountain Pass in California as the largest non-Chinese rare earth deposit in the world. But it almost fell into Chinese hands unnoticed. The mine in Mountain Pass is owned by Unocal, and in 2005 a Chinese bid for Unocal almost succeeded. The Chinese were trying to strengthen their monopoly on rare earth elements and it almost worked. There are other significant deposits in Lehmi Pass on the border between Montana and Idaho and Diamond Creek. The U.S. Geological Survey (USGS) in collaboration with counterparts of other nations should map out global reserves of rare earths. Letting mines fall into Chinese hands is a risk that hasn’t been addressed yet.
We also need to build our own separation plants. Molycorp processes “light” rare earths, such as lanthanum and neodymium, from a stockpile it accumulated at its mine in Mountain Pass, California. But it still has to ship its rare earths to China for processing, because only China currently has the equipment needed for the job. This whole process doesn’t help eliminate a dependency on China either.
John Chan
When China played by the US free market and capitalism rules to invest in the US with its excessive US dollar reserve, e.g. investing in Unocal, the US blew the patriotic trumpet to fight off the jobs will be created by the China’s investment. On the other hand, the US is beating war drums and accusing China of stealing jobs from the US. So what does actually the US want from China? Hand over whatever the US wants for free? Please make up your mind, the US, so China can know what to do. For haven’s shake, at least let China help those unemployed US citizens in the areas such as Mountain Pass, Lehmi Pass, etc. while the Republicans, Democrats and the Tea Party are fighting out their petty differences in the ego trough in Washington DC.
hk
@john chan… China would not be what it is today without America. Now you want to beat your mentor(your customer). No morals!!!!
John Chan
@hk, this is a forum for presenting different opinions without fear and reprisal. Here people experience true form of freedom of speech. You can present different opinions, but please do not degrade yourself and other commenters by attacking other commenter personally, who so happen to view issues differently from yours. The best method of refraining your anger is to clear your mind of hatred, take a deep breath then wait for a day or two before typing your comments. Peace with yourself will make you view comments from other commenters in a totally different light. Peace, live long and prosper.