Magnequench, a Rare Earth (RE) permanent magnet manufacturing company was set up by General Motors in Anderson, Indiana in 1986. The company was put on sale in the early 1990s. The Sextant Group with two Chinese state-owned metals firms, San Huan New Material and China National Nonferrous Metals Import and Export Company (CNNMIEC) acquired the company in 1995.
The concern
In 2020, US President Donald Trump declared a ‘National Emergency’ to deal with the situation created by China attaining a monopoly over the production and processing capabilities of Rare Earths (RE) and Rare Earth Elements (REE). Explaining the rationale, the Executive Order, cites the importance of RE thus: “These critical minerals are necessary inputs for the products our military, national infrastructure, and economy depend on the most”. It further goes on to elaborate by stating, “Our country needs critical minerals to make aeroplanes, computers, cell phones, electricity generation and transmission systems, and advanced electronics”.
Elucidating China’s part in the crisis, the Order states “Our dependence on one country, the People’s Republic of China (China), for multiple critical minerals is particularly concerning. The United States now imports 80 per cent of its rare earth elements directly from China, with portions of the remainder indirectly sourced from China through other countries.
The real challenge is in finding mineable deposits of Rare Earth Elements which can be quarried and processed economically.
In the 1980s, the United States produced more of these elements than any other country in the world, but China used aggressive economic practices to strategically flood the global market for rare earth elements and displace its competitors. Since gaining this advantage, China has exploited its position in the rare earth elements market by coercing industries that rely on these elements to locate their facilities, intellectual property, and technology in China”.
The real concern is, by controlling the exports of these vital minerals and raising costs, Beijing can put the US’ hi-tech industries out of business, casting aside USA into a position of industrial and technological irrelevance.
What are Rare Earth Elements?
REEs are not rare as the name suggests but are found in low concentrations all over the world. The real challenge is in finding mineable deposits which can be quarried and processed economically. The processes to separate the REEs from mined material are long-drawn and complicated.
Importance of REE
REE are critical raw materials in the manufacturing of modern military systems and sophisticated equipment for use in the civilian sector. Intermediary industries exploit the exclusive properties of REEto manufacture components for complex modern high-tech devices such as laser systems, night vision appliances, radars, aircrafts, space vehicles, precision-guided ammunition, guided missiles, fibre optics, automobiles, etc.
Industries that are involved in the manufacture of glass, permanent magnets, oil refining, oxygen sensors, batteries, consumer electronics, fuel cells, optical equipment, CFL and LED lighting also use REE extensively. To sum up, no high-tech military or civil applications can be manufactured without REE.
China’s REE Strategy
China’s REE strategy is to become the leading hi-tech power in the world overtaking the position held by the US. China has had the fortune of having RE, a strategic natural resource in abundance. In addition, China’s Belt and Road Initiative (BRI) has increased its access to RE material from participating countries across the globe. Beijing’s strategy evolved in stages.
Till 1990, the US was the major Rare Earth producer while China was still wrestling to develop and keep its RE industry going.
The first stage was set to develop its REE research and industries on priority. Once its industry was in a position to meet the requirements of domestic and export needs, Beijing triggered the second stage which was to keep the price of REE adequately low so as to put all its competitors in the field out of business and thus killing research and domestic production of Rare Earth (RE) in the US and the West.
Till 1990, the US was the major RE producer while China was still wrestling to develop and keep its RE industry going. Owing to low labour costs, lax environmental restrictions and the absence of administrative regulations constraining the industry, China’s production of RE was soaring. On the contrary domestic demand in the US for RE dropped in 2002 compared to 2001 and the separation plant at ‘Mountain Pass’, US’ biggest RE mine was becoming financially unviable. There were complaints about ecological damage being caused by the plant, possibly incentivised by China. The mining company ‘Unocol’ therefore decided to stop production.
Falling for cheap REE, France and Japan made a strategic miscalculation that benefited China and initiated the regression of RE and REE industries in the west. In late 1989 and early 1990, France shifted its extraction and solvent extraction facilities to China. At around the same time, Japan too decided to close down and shift a number of its RE processing facilities and plants to China along with the technology in return for supply contracts.
A crucial technology along with readymade processing plants thus got transferred from Japan to China providing job opportunities and a significant technology asset which was to force Japan to struggle for REE material in later years.
In the third stage, China imposed well-calibrated and coordinated rationing and taxation policy for RE and REE products besides regulating the flow of these vital commodities to exports as well as domestic markets. These measures resulted in the escalation of the market price of the merchandises. On the other hand, priority for the supply of these vital inputs for domestic high-tech industries was accorded.
In the fourth stage, China resorted to the strategic acquisition of companies like Magnaquench which employ unique technologies in its manufacturing thereby gaining access to high-tech intellectual properties. Presently, the US is dependent on China for REE and for processing RE mined in the country.
Conclusion
China’s efforts to develop RE, REE and high-value state-of-the-art equipment was no secret. The famous comment “The Middle East has oil and China has rare earth,” made by the Communist Party leader Deng Xiaoping while visiting the JL MAG Rare-Earth Co in 1992 in the Jiangxi city of Ganzhou Province should have made the Western Powers to sit up and realise the importance of RE. The present Chinese President Xi Jinping too paid a visit to this establishment in 2019 along with his emissary, for trade talks with the US. Liu He, whose presence though seemed out of place, was most probably intended to make a statement which the US would have hopefully taken note of
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