by Richard Despard
Six of the seventeen Rare Earths
Clockwise from top centre: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium.
Photo by Peggy Greb, US Department of Agriculture
Last month I wrote to Only Connect’s editor, Richard Pooley, asking: ‘Where was the leadership and strategy plan that the EU’s Brussels administration should have put in place decades ago? The Chinese strategy [to control those raw materials essential for future industrial development] was ‘Writ large’!!’ With a deft backhand, he flipped it back to me and asked for an article.
My exposure to China extends a bit beyond excellent Dim Sum lunches in London’s West-End. In the 1980’s I was introduced to Fergus Liu, who had just invented the turbo gas cooker. Today almost every UK Chinese and Japanese restaurant has one. Fergus had a successful kitchen equipment import business that frequently took him to China. On a visit he was taken to Anshan and shown a field of boxes that had been bought by the Red Flag Tractor Company. Together they constituted a steel rolling mill. They had been sitting there for five years and the commissioning contracts had expired. “What to do?” Fergus was asked. On his return he asked me. Together we arranged for a Chinese delegation, and the Swiss company, Georg Fischer, and the German firm, Knight Wendling, to come to England. For a week we sat in a room with fifteen Chinese Government, City and company representatives. Very polite circular discussions. Agreement was reached when the Europeans got bored. It was clear from the beginning that the contracts would be renewed; failure to renew would result in little further work or business in China. Both European companies have subsequently developed successful local operations in China. Fergus’ status rose, and I introduced him to the Rolls Royce Industrial Power Group, for which he set up joint venture companies in Fushun (Liaoning) and Baoding (Hebei) in between 1990 to 1998. This exposure to China has kept my eyes open to their industrial progress.
You might remember people waving Chairman Mao’s Little Red Book on high. It became a best seller, but was beaten by Sun Tzu’s Art of War. Chairman Mao’s Great Leap Forward strategy of 1958-62 included the elimination of the sparrow population. But they ate the bugs that ate the crops. The crops failed, famine resulted and millions died. A failed strategy. Mao died in 1976 and after two chaotic years Deng Xiaoping took control. With military experience and extensive Communist Party connections, he was well positioned to effect change. The changes were many, and included opening China up to foreign investment and technology, and making its vast labour force available to foreign businesses.
Reforms also included facilitating elements of market capitalism in the Chinese economy by designating Special Economic Zones (SEZ). Shenzhen, a small fishing village of 30,000, was designated as one of the first SEZs in 1980. Ranked as a top ten global finance centre in 2024, it is considered to be “China’s Silicon Valley”. The World Economic Forum estimates that 90% of the world's electronics are made in Shenzhen, including mobile phones, televisions, air conditioning units, and drones.
Deng was a strategist – and his strategies worked. Since then, countless foreign companies have set up local China-based operations or have entered into joint ventures.
Volkswagen commenced operations there in 1984, and now has three joint-ventures that produce more than four million vehicles.
Siemens entered a cooperation agreement in 1985 with the Chinese government. It is one of the largest producers of energy-efficient and resource-saving technologies, a leading supplier of efficient power generation and power transmission solutions, and a pioneer in infrastructure solutions as well as automation, drive and software solutions for industry. It has its Cyber Security Operation Centre service based in Suzhou, monitoring customers’ digital factories and production lines, identifying cyber threats facing customers.
Apple has around 95% of all its products produced in China. One facility alone is reported to be assembling half a million iPhones per day. It is so integrated into the local manufacturing structure, including suppliers, manufacturers, logistics and a trained workforce, that moving everything to another country, would be immensely difficult.
Each of these huge companies, two European and one American, have China-based operations that are strategic to their business. They all draw on the local infrastructure and conditions that are hard to recreate elsewhere. Rare Earth Elements (REE) are a Critical Raw Material (CRM) required by each of these companies to succeed.
What are these “must have” Rare Earth Elements? They consist of a group of seventeen metals that are crucial to the development of modern technology and strategic industries, including defence, aerospace, electronics and electric vehicles. REE are key ingredients for glass, lights, magnets, batteries, and catalytic converters, and used in everything from smart phones to cars, digital cameras, computer hard disks, fluorescent and light-emitting-diode (LED) lights, flat screen televisions, computer monitors, and electronic displays.
For example a magnet for one wind turbine needs about 300 kilograms of neodymium and significant amounts of dysprosium, praseodymium, samarium, cobalt, and rhenium. Neodymium-iron-boron magnets are the strongest magnets known, and are used in computer hard disks and CD–ROM and DVD disk drives. Nickel-metal hydride batteries are built with lanthanum-based alloys as anodes. These battery types, when used in hybrid electric cars, contain significant amounts of lanthanum, requiring as much as 10 to 15 kilograms per electric vehicle.
A significant number of products in use today have been manufactured using REE. Without access to them industrial and commercial operations will be at risk, but so too will be our communication and defence infrastructure. So, who are we relying on to supply REE?
China (PRC). Well not totally, but still significantly. China recognised very early, the benefit of having control of REE production, its processing, and its integration into strategically important industries. It developed its REE strategy, and created a complete toolbox to deliver it. This includes using State capabilities combined with private sector entrepreneurship. At home, local and Central government bodies provided many incentives for foreign enterprises to set up local enterprises, especially joint-ventures. Grants and a cheap (initially) labour force, fully integrated logistics, and access to raw materials including REE, (and a massive consumer market) encouraged companies including those above to set up there. While China has large REE deposits, it recognised that for long-term supply security, and to exclude the competition, it needed to acquire or have influence over the mines and their products that were located elsewhere. This strategy has been successful, principally in Australia, South America and Africa. In order to acquire or establish joint-ventures, Chinese companies were able to offer the mining skills and equipment, the (scarce) processing technology and skills, and end-user contracts, representing a package that was hard to beat. This package in many instances came with large Chinese Government loans to each country, for mainly infrastructure development.
The result:
This summarises ownership rates by investor origin for five selected metals. China’s leading position is especially notable in the extraction of rare earths (REE), cobalt and, to a lesser extent, lithium. While Australia accounts for half of the world’s lithium production, two of its biggest lithium mines are owned by Chinese companies. Chinese investors also have significant stakes in nickel and cobalt companies, and these minerals are predominantly mined in Indonesia for nickel, and the Democratic Republic of Congo (DRC) for cobalt. Chinese mining and battery companies have invested $4.5 billion in lithium mines in the past two years and are behind much of Africa’s lithium projects in countries like Namibia, Zimbabwe and Mali. By contrast, European investors hold limited stakes in Critical Raw Material (CRM) mining companies. The EU’s relatively high stake in the nickel sector partly reflects investments located in Cyprus, representing significant Russian interests.
So, China and Russia – again! Under Xi Jinping, China has changed and become more centralized, authoritarian and assertive abroad, and its goals are often in contradiction with European interests and values. Back in 2019, the EU Commission acknowledged this shift by introducing a tripartite definition of China, as a partner for cooperation and negotiation, an economic competitor, and a systemic rival. Many fear that China will pursue increasingly coercive measures to leverage its supply chain advantage in pursuit of broader geopolitical objectives. Reference my experience with Anshan - agree or be excluded. This presents a strategic challenge for the United States, Europe and their allies, who are increasingly dependent on China’s production of mineral resources. In 2022 the United States was 100-percent net-import-reliant on its supply of at least 13 of 33 critical minerals and it is more than 50-percent net-import-reliant for at least an additional 13 of these critical minerals. China supplies the EU with 97% of the Magnesium and 100% of the REE it requires whilst Turkey supplies 98% of its Borate needs.
My question to Richard was: Where was the leadership and strategy? A good question, but it turns out that I should have added ‘execution and outcome’.
Most studies indicate that there was no leadership or strategy, until about 2021. Since then, both the EU and the US have accelerated the pace of engaging in multilateral and bilateral CRM partnerships. The EU’s Global Gateway, and the US-led Partnership for Global Infrastructure and Investment, are aiming at offering an alternative to China’s position of dominant control of CRM . Yet, to be truly effective, such initiatives must reach both speed and scale and deliver concrete positive benefits on the ground.
The absence of a true EU industrial policy is Europe’s dilemma. Currently, any EU industrial policy aimed at achieving strategic autonomy may require measures that deviate from the core principles of the single market. This deviation can potentially exacerbate disparities among member states, both in terms of their industrial capabilities and, ultimately, their economic development. Hence, getting twenty-seven member states to agree on a commitment of financial and other supports, with trade or other controls, is very difficult.
However, concern over national security, strategic autonomy, improving the governance and sustainability of CRM supplies are the main driving forces for some action that has been taken. Some member states, like France, raised the importance of the subject some years ago, but Europe has been very slow to react. The EU seriously started to address these issues through legislation in 2023 via the Critical Raw Materials Act. The United States under President Trump made the first steps in 2017 through the Executive Order 13817, followed by the release of a list of 35 critical minerals in 2018, and the Biden administration has stepped up US action on CRM supply diversification. Japan was a pioneer in 2010.
Europe’s response, while slow to emerge, has been a ‘De-Risking’ strategy: to reinvest in its own mineral extraction, refining and recycling capacities; to review current defensive instruments, along with establishing new protections, including new investment screening; and to diversify global supply chains by expanding its strategic partnerships. Considering the scale and nature of China’s support for its own CRM operations, in order to be successful, the EU will also need to provide much greater financial support to better align European private sector interests with the bloc’s stated energy security and de-risking objectives. The EU has signed strategic partnerships with several politically friendly countries around the world, including in Africa. The EU will only realise its de-risking ambitions if the European private sector invests in CRM supply chains. Yet the incentives for European companies to enter mining and processing operations in these markets are too weak. In Namibia the EU’s strategic partnership has borne little fruit; and may even be benefitting Chinese firms at European expense. To address this, the EU must enhance support to European companies to invest in securing access to CRM. This should include new financial incentives and measures to protect against China manipulating prices on international markets.
All the above is drawn from too many sources to list. Most reports indicate that the EU has moved from no agreed strategy, to a recognition of the need for action on some deliverable key objectives. ‘Deliverable’ is the key word. While France, Italy and Germany have put in place their metals investment funds, getting the agreement of all EU states to centrally deploy the resources (financial and other) remains very uncertain. So, I was right to ask where the leadership and strategy was. We are now seeing both but they would seem to be inadequately empowered to deliver the immediate results needed to secure long-term access to CRM (including REE) together with the technologies necessary for processing and use.
Last words:
Professor Yan Xuetong, China’s most revered political scientist on 20 December, 2024: “The United States’ competition with China is not over ideology—but over technology. In the digital age, security and prosperity depend hugely on technological progress. China and the United States will battle over innovation in fields such as artificial intelligence, and wrestle over markets and high-technology supply chains.”
Forbes magazine – “'Made in China', whether directly or indirectly, is the sobering reality that we face.”
After I finished writing this article, President-elect Trump said that he wants to buy Greenland. This was Sky News’ explanation for this apparently bizarre proposal:
“Greenland holds rich deposits of various natural resources. Locked inside the island are valuable rare earth minerals needed for telecommunications, as well as uranium, billions of untapped barrels of oil and a vast supply of natural gas that used to be inaccessible but is becoming less so. Many of the same minerals are currently mostly supplied by China, so other countries such as the US are interested in tapping into available resources closer to home.”