China: Not "Good Earth" but "rare earth"

A month ago, I blogged about the rare earth elements, and quoted Sam Kean there (from his book) that America, which used to be the big boy in the business, closed it shutters while China rapidly moved ahead. 

Though I have a personal connection to rare earth elements, as I discussed in that post, I had no idea that China had become that powerful.  But, even that was nothing compared to the latest news on this topic:

China cut its export quotas for rare earth by 72 percent for the second half of this year, according to data from the Ministry of Commerce on July 8. Shipments will be capped at 7,976 metric tons, down from 28,417 tons for the same period a year ago.

Mining for rare earth minerals and processing them is not something that can be done right away by a new player just because there is an international market demand for them.  We are looking at a lead time at eight to ten years.Meanwhile, the newer technologies we develop demand a lot of that rare earth, which makes China's decision all the more critical.

So, what is China's rationale?

Restrictions on the rare earth industry will help protect the environment, the state-run Xinhua News Agency cited Chen Deming, China’s commerce minister, as saying yesterday at a media briefing during China-Japan economic talks in Beijing.

The Chinese government's concern for the environment is nothing but crocodile tears to camouflage its flexing muscles in the marketplace.  (editor: too many metaphors! And mixing them!! is this what you teach your students?)

Slowly, America is waking up to this reality.  Unfortunately, the dominant angle appears to be from a national security perspective:

Rare earth elements are critical to advanced military technologies, computer and cellphone hardware, hybrid car batteries and wind turbine magnets. In other words, if you were going to target an industry crucial to dominating key technologies of the 21st century, rare earth element processing would be near the top of the list.

Andrew Leonard states that is:

[The] primary conclusion to be gleaned from a review of three recent studies of Chinese dominance of rare earth element mining and processing, "Rare Earth Elements: The Global Supply Chain," a report published by the Congressional Research Service in July, the Government Accountability Office's "Rare Earth Materials in the Defense Supply Chain," published in April, and China's Rare Earth Elements Industry: What Can the West Learn?" published by the Institute for the Analysis of Global Security in March.

The past decade has been one in which America was trapped in its wars, while China was all the more freer to pursue its strategic interests.  This is an important cost of war that we vastly underestimate.

Finally, the business model that China employs is pretty interesting: thanks to China, Wal-Mart was able to consistently lower prices, open stores all over the country and, thereby, wipe out local manufacturing and retailing.  China is now using the same model--it is a huge Wal-Mart by itself that takes over the global market, wipes out local competition (such as the American rare earth mining and manufacturing) and we are at its mercy now ... how oddly symmetrical!

BTW, Leonard notes that America did at least one thing right in this rare earth business:

I did not realize until reading the Hurst report was that the controversial, and ultimately unsuccessful attempt by the state-owned Chinese oil company to buy Unocal back in 2005 may have largely been a rare earth element play. There is one currently operating rare earth mine in the United States, California's Mountain Pass mine, owned by Molycorp.

In 1978, Unocal purchased Molycorp. In 1982, Mountain Pass Mine began processing samarium oxide and in 1989, it began processing neodymium oxide, both critical components of two types of permanent magnets. In 2005, China National Offshore Oil Corporation (CNOOC) submitted an $18.5 billion cash bid for Unocal, outbidding Chevron by half a billion dollars. CNOOC's bid raised a great deal of concern for U.S. energy security. While there was a media frenzy over these concerns, one issue received little attention -- repercussions of China gaining control over Molycorp through CNOOCs purchase of Unocal. If the deal were to have gone through, China would have gained control over Mountain Pass and therefore the country would have had a complete monopoly over all the current major rare earth element resources in the world.

In retrospect maybe it was a smart decision to block the Chinese purchase of Unocal, though I suspect that most of the politicians who were grandstanding the loudest about the dangers of letting China gobble up a U.S. oil company didn't have a clue as to the rare earth angle, and would likely have dismissed renewable energy technologies as hippie self-indulgence. But the bottom line is that China has its eye on the prize, while the U.S. continues to flail.