China buys US and monopolises rare earth metals

An article in the Times of 9 March says that China will be the “'ultimate monopolist' in the supply of rare earth metals — a dominance that industry experts say could give Beijing control over the future of consumer electronics and green technology.”

The article states that: China controls 95% of these metals; it has resources and refinery capacity to satisfying growing world demand but has limited its export capacity to 38,000 tons, less than Japan alone needs. According to Jack Lifton, an expert on rare earths, Deng Xiaoping set out this agenda 15 years ago, saying “China would be for rare earth metals what the Middle East was to oil”. He added, “The world has to wake up and start thinking of this group of elements as the ‘technology metals' without which there will be no technology.” It will give Chinese companies a competitive edge as they move into high-technology industries [sc: didn't the free traders promise that the West would be predominant in high-tech?]; and 2) may force foreign companies to move to China, putting at risk their industrial secrets. The Chinese can engineer a drop in prices, to make development of alternative supplies unprofitable; recently an Australian company, Lucas, dropped out of a project that could have supplied Japanese Industry. While China has only 42% of these metals within its territory, it has virtually all the refining capacity. Chinese investment companies are intensifying expansion into this area.

No doubt to the pan-glossian vision of free trade devotees, this is part of the great march of progress, but it worries me. A search for rare earth metals in Google found a preponderance on physics and chemistry based pages with the Times article one of the few politics-based entries. The
wikepedia entry confirms the times article discussing japanese pleading with the Chinese in 2007, chinese villages suffering from pollution and GM moving its staff to China. Now I am not an expert, but our so-called experts are blissfully unconcerned about the dangers of China monopolising key industrial raw materials. That this has been going on for years without a mention exemplifies Charles Handy's adage that if you put a frog in a saucepan of cold water and heat it slowly, the frog adapts its body temperature to the water until it eventually boils alive. If it were a bomb, even a bomb attempt, or tinpot dictator threatening destruction, the media would be all over it, politicans would protest, they might even go to war.

There is hope as 58% of these metals are outside China; but the Chinese will keep buying these resources up, and putting pressure on any company or country that tries to break their lock on this type of metal.

You might expect the West to complain against this intentional distortion of the Free Trade system. Well, in spite of "soft power", no-one takes the Europeans seriously, who listens to them? But the US will protest surely? Maybe they can't, now that they are so dependent on Chinese money to finance the debt that they daren't complain. Apparently the chinese premier is worried about US debt; and according to another Telegraph strapline, Hilary Clinton had to plead with China to buy US treasuries. Looks like China has influence over the United States. The US has been fighting military wars, but the American colossus has economic feet of clay. The irony is that American military security is already compromised by dependence on Chinese manufacturing, which I blogged on previously.

Maybe our current leaders are saying that if the West plans to get out of manufacturing, then it won't need to compete for the world's resources with an industrial giant like China. Certainly, it won't be able to afford to do so. The specific worry with resource mercantilism is that if the West comes to its senses, it may be locked out of industrial activity altogether because China guards its monopoly supply.

That China could have influence over American policy has been registered by conservatives such as the Heritage institute, who say that China has nowhere to go at the moment except to buy US Treasuries, but the balance of power would shift if the US keeps stacking up deficits. That kind of nuance make sense, I suppose, if you see the world through the prism of finance rather than looking first at the supply of the world's resources, on which all economic activity ultimately depends.