An article by John Lee at Forbes.com entitled Beijing’s Motives Behind Rare-Earth Metals caught my attention today. Initially, I was given cause to roll my eyes in incredulity that for such a smart guy it should have taken so long for the penny to drop:
There’s a growing suspicion that China is increasingly taking a zero-sum rather than ‘win-win’ approach to open markets and free trade.
Never!! Tell me it ain’t so. Really? This opening possesses about as much permeating insight as a scientist who suggests that global nuclear conflict might be bad for your health. In other words, in the name of human compassion, it’s high time that commenters on China (especially the smart ones) get off the damn fence of ‘growing suspicion’ and embrace the reality of Beijing’s long game.
I could name dozens of China-watchers and analysts more clued up than I am on Chinese history, culture, politics, and trade. And yet, so many seem lost in the mists of denial about the clear disconnect between China’s stated regional and global ambitions and their real intentions. Thus, when I read that opening sentence I said to myself, “what the hell took you so long to figure it out and why are you still equivocating?”
By the end of the article, however, I was more inclined to give John Lee some credit for spelling out exactly what Beijing has in mind for its near monopoly of rare-earth metals. First, the author neatly recaps the importance of this group of metals, and how China has come to dominate 95% of the world’s supply:
Realizing the growing importance of these metals, Beijing has spent the best part of the past sixteen years attempting to control the market in the supply of these materials. While state-owned Chinese mines were able to mine these metals at much cheaper prices than foreign competitors–in the process pushing these competitors out of the market–foreign governments and corporations were content to increase their reliance on Chinese suppliers.
Everyone seemed so sure that China would play by the rules, foreign governments have effectively given Beijing’s strategists the opportunity of taking vital rare-earth candy from a group of helpless infants. And now they’re going to pay for it. Dearly. Following a decision to cut exports of rare earths by 72% in the second half of 2010, Beijing has recently announced a further reduction in export quotas by 35%. These moves, the article notes, mean that only 14,508 tonnes will be available to foreign markets in the first six months of 2011 – not even enough to sustain one large Japanese auto manufacturer.
Just to be clear, it is not the case that China does not have the capacity to meet existing demand, it has just decided that it doesn’t want to. Did I mention how vital these elements are? For any fence-sitters out there still clinging to the forlorn hope of China as a responsible stakeholder, this state of affairs has nothing to do with coincidence:
Beijing knows that governments and mining companies around the world will respond by reopening existing mines and developing new ones outside China. Indeed, the production of these metals is being accelerated by miners operating in countries such as Australia, Mongolia, Thailand and Ukraine. But reviving defunct mines and opening new ones require significant capital and will take several years …
… given the number of years needed to mine enough rare earth metals from sites outside China, Beijing is attempting to force foreign companies who want access to large quantities of rare earth metals to form joint-ventures with local firms and base their manufacturing operations within China. Revealingly, any foreign company in such a joint venture is not subject to any quota restrictions.
Foreign manufacturers are compelled to engage in joint ventures with a local firm. To be sure, legitimate technology transfer from joint ventures between local and foreign firms operating within China is one thing. But large scale industrial espionage and theft, especially when it is initiated by state-owned giants is another.
One would have thought that some think-tankers with a handful of under-utilized brain cells could have figured this out before the planet outside China backed itself into this unenviable corner. Apparently not. Well, we’re in it now. The only thing that could make this position any worse is if our present crop of estimable China analysts persist in the perpetuation of the myth that Beijing will wake up one morning and start playing fair. It won’t. The Forbes article ends:
The problem is that many products requiring rare earth metals are in lucrative and cutting-edge sectors. The suspicion is that illegitimately optimising imported technology has become one primary strategy for many of China’s domestic champions – an approach that is condoned by the Chinese Communist Party. If so, this goes to the heart of whether China is emerging as a responsible stakeholder in the global economic system.
Take another look at that last sentence. Yep! He said “whether”. Still sitting on the fence, I see, despite overwhelming evidence that Beijing intends not only to maintain China’s rare earth needs (which is fair enough), but to control global supply to the comparative detriment of others’ industries and livelihoods. That’s the kind of cold-blooded, zero-sum approach to human life not seen since this happened:
Admirable for its clinical pragmatism, perhaps; but a force for planetary good? Never. It’s time to send for Sigourney Weaver.
Do it now.
Justrecently has pointed out, quite rightly, that China really doesn’t have much incentive to stop screwing everyone around – a policy that is yielding all the dividends Beijing craves. See his latest offering on Sino-EU ties as a further example of the leverage they have. The planet is in need of a new game plan, because waiting or expecting China to behave responsibly is never, NEVER, going to happen under present dynamics.