China is studying the possibility of restricting exports of rare earths that are used in the production of key components for US F-35 fighters, among other important modern industries.
China’s Ministry of Industry and Information has proposed draft regulations that seriously restrict exports, mainly to the United States, of 17 chemicals called rare earths. 80% of its world production comes from China. If passed, the restrictions could hamper the US military industry.
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Rare earths are used in almost all modern electronic devices, household appliances, sports equipment, construction, engineering, etc. These components are also needed to produce electric car batteries and for the military industry. An F-35 fighter plane contains 417 kg of rare earths.
China dominates the world market for rare earths. In the first place, it has important reserves of these elements that represent 40% of the total world deposits. Second, unlike other countries, the Asian giant has managed to organize a complete technological process to process them.
This situation worries the US and its allies: not only the high-tech sector but also the military-industrial complex, critical for national security, depends on Chinese supplies.
Faced with an increase in tensions between the United States and China, former President Donald Trump called in 2019 to develop a plan together with Australia to ensure the supply of rare earth minerals alternative to Chinese.
However, it is not a problem to extract the rare earths but to process them, Mei Xinyu, an expert from the Research Institute of International Trade and Economic Cooperation of the Ministry of Commerce of China.
“In theory, tougher rare earth metal export controls by China could encourage other countries to develop their own production facilities. However, China has built up strong competencies and innovative capabilities in this field, which determine the competitiveness and the world’s greatest efficiency in separating and purifying rare earths,” he said.
Therefore, production costs in China are the lowest in the world, according to the analyst. Other countries, including the US, even if they produce raw materials, have to send them to China for processing.
“That is why it is not a question of raw material reserves, but of the ability of other countries to compete with China in processing these raw materials,” Mei Xinyu said.
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The US government, meanwhile, plans to invest more than $ 30 million to boost domestic rare earth light element processing capabilities, the country’s Defense Department recently announced.
In theory, the current draft rules could be used as an additional argument in the dispute with the US, which imposed sanctions on several Chinese technology companies, including Huawei. However, the main objective of these rules is different, stressed the Chinese expert.
“The main objective of the draft regulation to control the rare earth industry is to rationalize the market. Of course, rare earths can be an argument in negotiations with the US hawks. But our most important objective is to maintain the image of China as a reliable supplier in international markets. China will not take advantage of American methods, abuse its position or cut off supplies. As the world’s largest exporter, we value our reputation.”
Ecological reasons
The restriction of rare earth exports may also be related to China’s environmental agenda. The extraction and processing of these elements cause serious damage to the environment, since the top layer of the soil is destroyed. And during the separation of metals toxic gases are emitted. Furthermore, intensive mining sometimes causes landslides in the mountains.
China, meanwhile, has big green goals, in particular achieving carbon neutrality by 2060. In this context, the country is increasing its control over all industries that could pose a serious threat to the environment.
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However, the draft new rules already have positive consequences for the rare earth producers themselves, at least in the short term. Shares of mining companies rose sharply in Hong Kong. Thus, China Rare Earth Holdings Limited rose by about 14% in just one day.