China reminds world shock and ore can hurt tech supply chains

Nice chip and EV factories you're building there. Would be a shame if they couldn't get any rare earths to work with

China has immense leverage over technology supply chains due to the happy accident that its territories contain most of the rare earths needed to manufacture electronics and batteries, and that it dominates industries that ready them for use.

The Middle Kingdom reminded the world of that fact after Australia's minister for resources, Madeleine King, on Tuesday delivered a speech in which she noted China's dominance:

China has the largest rare earth reserves globally; the highest production of rare earth concentrates; and controls as much as 85 to 90 per cent of global production at various value-added stages of the supply chain.

King went on to note that in 2021 China produced 168 kilotonnes of rare earth oxide equivalent, while the next largest producer – the USA – produced 43 kilotonnes. China also dominates the rare earth magnet industry, producing 174 kilotonnes in 2021. The world's second most prolific producer, Japan, commands less than nine percent of the market.

"It is a fact that the scale of China's manufacturing and demand has played a key role in driving down the cost of crucial technologies like solar photovoltaics, batteries and electric motors," the minister said. "But this level of supply chain concentration, regardless of where the concentration points lie, leads to significant vulnerabilities which have been all too apparent in recent years."

The minister called for diversification of rare earth supply chains. She noted that Australia is accelerating development of its own substantial deposits and talking to Japan, the United States, the United Kingdom, the European Union, the Republic of Korea, India "and many others" about how they can access them.

Speaking to Bloomberg, King added that even with the initiatives described above, China will remain the planet's dominant source of all things rare earth.

Beijing noticed King's speech and remarks, and foreign ministry spokesperson Zhao Lijian responded by saying "Countries with critical mineral resources need to play a positive role in keeping relevant industrial and supply chains safe, secure and stable."

"No one should use economy as a political tool or weapon, destabilize the global industrial and supply chains or punch the existing world economic system," he added, before stating China will do its bit to "keep the world economy and international trade stable and diversified."

And indeed China will – for as long as it makes sense to do so.

But current Chinese policy has adopted the notion of "dual circulation" – a plan to increase both exports and domestic consumption, so the nation is less reliant on exports for growth.

The time may come where China feels it can prioritize local consumers of rare earths. Consider electric vehicles – a tech considered to be an important contributor to decarbonizing the world economy. Crimping rare earth exports could make it harder for nations to meet emissions reductions targets, even as the economics of relying on fossil fuels become onerous.

And then there's the billions the US and Europe have invested in chipmaking plants, which will rely on availability of rare earths.

China has not yet declared it could use shock and ore tactics. And it is currently constrained from doing so by the need to keep export-oriented industries humming so its populace has jobs – and the Communist Party can deliver on promises to improve the standard of living.

But King's and Zhao's remarks make it plain that China could, if it wished, do mighty damage to global supply chains. Just like the US has done to China's by restricting the import of many advanced technologies. ®