China Increasing Economic Leverage By Limiting Rare Earths Exports

by Admin on September 23, 2010

in China, In The Media, Japan, Rare Earths

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by John Pomfret – Washington Post – Published September 23, 2010

Reports of an export ban by China emerged after a New York Times article on Thursday quoted industry officials saying the Chinese government had stopped shipments to Japan. Within hours, the Chinese government denied those claims.

“China did not take any measure to limit the export of rare earth to Japan,” said Ministry of Commerce spokesman Chen Rongkai. “The story is incorrect.”

Besides the ramifications in regional diplomacy, the confusion over the exports has broader implications that stretch from the business world to U.S. national security because the minerals are used to manufacture such a wide spectrum of products.

The current tensions between China and Japan were triggered by a dispute that has raged for weeks over the collision of a Chinese fishing boat with Japanese coast guard ships near disputed islands claimed by both countries. The Chinese captain remains under arrest in Japan, and Chinese leaders have warned they would take retaliatory actions if he wasn’t released.

It was unclear on Thursday whether a specific ban on exports to Japan might be the realization of that threat. In recent months, China has discussed and put into place restrictions on the overall export of rare earths, in an apparent attempt to give Chinese manufacturers an advantage and in a demonstration of force. China now controls more than 95 percent of the world’s rare earth supply.

With most offices in Japan and China closed for a holiday, it was difficult to determine from rare earth companies and industry experts whether shipments to Japan have indeed been stopped.

Along with unnamed industry officials, the New York Times report quoted Dudley Kingsnorth, executive director of the rare earth consulting company Industrial Minerals Co. of Australia. Reached by other news organizations, Kingsnorth confirmed that he had heard from several people in the rare earth industry who said they were asked by China to stop exports to Japan. The requests, Kingsnorth said, constituted an “unofficial” ban.

China has long been moving toward restrictions of rare earth overall, noted Zhou Yongsheng, a Japan studies professor at China Foreign Affairs University in Beijing. Each time it reduced rare earths exports, the government has cited the toll of such mining on the environment.

“Whether or not there is a ban, this policy didn’t come out all of a sudden. It’s a long-term policy. The control of rare earth exports isn’t necessarily related to Japan or the ship collision, but is related to China’s own internal reasons,” he said.

Independent rare earths consultant Jack Lifton, who spent time this month in both China and Japan, said, “The thing is, this [trawler] dispute heated up at that exactly the same time that China – for completely other reasons – was changing the [rare earths] allocation. So somebody in Beijing got the idea, we can kick those guys double. You talk about a way to retaliate without bloodshed, that’s it.”

Lifton said that in the days after the arrest of the trawler captain, a delegation from Japan’s Ministry of Economy, Trade and Industry traveled to Beijing, requesting China to reconsider its reduced export levels.

The Chinese near-monopoly on the rare earths industry has been much discussed among business leaders in recent months, especially after China sent prices rocketing this summer by announcing exports would be reduced by 72 percent for the rest of the year.

The minerals are used in high-powered magnets, radar, wind turbines and electric-car batteries. Japanese factories have long been a key buyer of Chinese rare earths. The Toyota Prius, for example, uses 25 pounds of rare earths. And many U.S. companies in turn rely on Japan for components that use rare earth.

In Washington, both Congress and the Defense Department are studying how the U.S. can avoid over reliance on Chinese rare earths, including possible moves to reopen rare earth mines that have been closed for years.

As for the regional disputes at the heart of Thursday’s confusion, Washington could weigh in as soon as Friday. President Obama is expected to meet with Southeast Asian leaders then and issue a joint statement that opposes the threats or force in disputed claims in the South China Sea, clearly aimed at China’s recent assertions of power. And in anticipation, Chinese leaders have already issued statements through state-owned media, saying “countries not involved” should not interfere.

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