Dug-Up In China: The World’s Critical Raw Materials

By Hongqiao Liu 15 February, 2017

CWR's Liu on the future of critical raw materials in China, which are key to the world's ICT & green industries

China supplies ~half of the world's critical raw materials
Growing domestic Chinese demand may mean global supply falls short; environ damage issues still not addressed
13FYP points to higher-value manufacturing & circular action for the mineral & metal industry; prices set to go up

Here stands China: on one hand, it remains the biggest global supplier of rare earths and many other critical raw materials that the world is depending on to feed the tremendous demand from green industries; and on the other hand, the country’s growing domestic demand and shrinking reserves could put its own supply at risk.

Growing domestic demand may mean China changes from a major supplier to a net importer…
…Where will the world source from then?

How China will fill this supply-demand gap in the coming years remains a mystery. What is certain is that the competition for rare earths between China’s domestic market and the global market will only become fiercer. Could China become a net importer of rare earths? Indeed, various intelligence agencies have predicted this could be the case and it is consistent with data from CWR’s report on rare earths. Given this shift, it is worth looking at the supply risk of other critical raw materials that are also predominantly produced in China. Could China become a net importer of these too? If so, where will they come from?

5 Quick Facts about Rare Earths

  • China has been the top global rare earth producer since the mid-1990s with 85-97% of global rare earth production;
  • As a result of this twenty-year “Chinese Era”, the country has been paying massive environmental costs, made worse from the unregulated rare earth mining, a black market and processing with low margins;
  • The 2014 UNCTAD special report on rare earths estimated that China would account for 70% of global demand for rare earths by 2020, which translates to 140,000 ‒ 168,000 tonnes of domestic rare earths consumption. This is not surprising given the Chinese government’s aim to transform from a manufacturing giant into a world manufacturing power with its ‘Made In China 2025’ Action Plan that promotes high-tech and green sectors;
  • However, since 2014 China’s Ministry of Land and Resources has maintained a national rare earth extraction quota of 105,000 tonnes. It is unclear where the additional 35,000 – 63,000 tonnes will come from in the 13FYP; and
  • Thus it appears that China may not even be able to feed its own growing domestic demand let alone international demand. This could be a serious bottleneck in the world’s path to a low carbon economy.

For more on rare earths see the below:
Rare Earths - Shades Of Grey - China Water Risk Report - June 2016 Can We Build A Clean & Smart Future On Toxic Rare Earths  Buying Electronics Can Pollute Our Future


Critical raw materials and more WTO disputes against China

China is responsible for almost half of the global supply of the most critical raw materials, many which are essential for the ICT sector and the green industry. This includes 69% of natural graphite, a key component for high efficiency rechargeable batteries; 85% of tungsten, a critical metal with wide application in alloy, energy-efficient lighting, radiation shielding and military (also a conflict mineral when produced in Congo Basin); 69% of magnesia and 86% of magnesium, which are widely used in the refractory industry, hydrometallurgy and waste water treatment, and above all, 99% of Heavy Rare Earths and 87% of Light Rare Earths.

China is responsible for almost half of the global supply of the most critical raw materials –
69% of natural graphite, 86% of magnesium…

While the future is full of uncertainty, major critical raw material consumption countries have taken legal action to secure supply today. Similar to the 2012 World Trade Organisation (WTO) case on rare earths, the US and EU in July 2016 filed new disputes against China’s duties and export restriction measures of certain raw materials (WTO dispute 508 & 509). A number of critical raw materials are listed in both, including antimony, cobalt, graphite and magnesia.
Since China joined the WTO, the US and EU, as well as Japan and Mexico have brought a number of trade disputes concerning raw materials produced in China. While most of the materials concerned are critical raw materials predominantly produced in China, such as rare earths and graphite, “conflict minerals” predominantly produced in the Congo Basin have also been included (see table below).

In August 2016, a spokesman from the China’s Ministry of Commerce responded to the July 2016 disputes with a similar argument as to the dispute on rare earths. He argued that relevant policies were “integral components of measures taken to promote the management of exhaustible natural resources and protect the environment with the purpose of achieving sustainable development”.
RE table 5

China has had to remove relevant duties and/or quotas due to WTO rulings…
…all meanwhile, the “true cost” of  producing these materials has not been addressed

In historical disputes on raw materials going back to 2009 on Silicon metals, Coke & Bauxite and then in 2012 on Rare Earths, Tungsten & Molybdenum, the WTO has ruled against China. As a result, China has had to remove the relevant import/export duties and/or quotas.

However, these disputes and rulings have failed to address the “true cost” of mining and production of these critical and conflict minerals. As we show in our rare earth report, the toll on China’s environment and people’s health is massive but there is little, if any, compensation. The cheap “cabbage prices”, black market and environmental crimes all contribute to this. These are all swept under the carpet by countries and global companies.

Green mines, cleaner production and more as China set green plans for 13FYP

Since mid-2016, the Chinese government has released a series of 13th Five Year Plans (13FYP) that have direct or indirect implications on rare earths and other critical raw materials discussed in this article. These include:

  • Guiding Opinions on Strengthening Environmental and Geological Rehabilitation and Comprehensive Management of Mines
  • Development Plan on Rare Earths Industry (2016-2020)
  • Development Plan on Non-ferrous Metal Industry (2016-2020)
  • National Plan on Mineral Resources (2016-2020)
  • National Development Plan on Strategic and Emerging Industry in the 13FYP
  • Comprehensive Working Plan on Energy Saving and Emission Reduction in the 13FYP
  • State Council’s Notification on Promoting Extended Producer Responsibility
  • Guiding Opinions on Strengthening International Cooperation to Enhance the Status of China in Global Value Chain

13FYP points to higher-value manufacturing & circular action for the mineral & metal industry

The overarching tone of these is for green and sustainable development for the mineral and metal industry in the 13FYP. This direction includes upgrading the manufacturing industry to go circular and focus on higher-value manufacturing with lower energy and water intensity. (We will explore the detailed implications of this in our upcoming brief on China’s water safety and green development, so stay tuned)

All of the above is positively moving towards better management of these materials but for a sustainable system the environmental cost must be factored into the price. This is regardless of WTO disputes ruling for or against, ultimately prices are going to go up.

Meanwhile, in the US, President Donald Trump is planning to issue a directive to temporarily suspend the Dodd-Frank rule from 2010 that requires companies to disclose whether their products contain “conflict minerals” from a war-torn part of Africa, according to a leaked draft memo. The memo also lays out a justification for suspending the rule, claiming it has led to “some job loss”. This is a very different path from what China is forging -a more sustainable, responsible and green supply chain. In late 2015, China launched groundbreaking guidelines addressing supply chain due diligence on conflict minerals.

Are we ready for a new era of cleaner & higher priced dug-in-China critical raw materials?

From dug-in-China critical raw materials to made-in-China green products (like rechargeable batteries, permanent magnets and other), China will have an even bigger role to play in the coming wave of trillions of global green investment in renewables, energy-saving and storage in our post-Paris Agreement world. Our clean and smart future should not be built on the sacrifice of China’s water, environment and people’s health. Nonetheless, the Chinese government is moving to change this. Are we ready to embrace a new era of cleaner and higher priced dug-in-China critical raw materials?

Further Reading

  • 5 Trends For The Year Of The Rooster – The Rooster crows a new pecking order as China leads the global climate fight & drives structural changes at home. Stay on top with our 5 trends and make sure you are not walking on eggshells but laying golden eggs
  • 5 Regulatory Trends: From Enforcement To Finance – Since 2016, China’s environmental policy landscape has undergone a series of important changes. CWR’s Xu summarises key regulations & 5 trends you need to know, from greater enforcement to green finance
  • Fall of The Cement Industry: A Painful Transition – To combat air pollution in China, polluting industries are being shutdown but what are the impacts to local economies? Zhang Chun from chinadialogue looks at the cement industry in Yi’an, Hebei, where only one plant remains from over 100 previously
  • Oil To Fall As Electric Vehicles Take Off – The growth of electric vehicles in China could displace 1mn barrels/day of crude oil by late 2020s. How will this impact companies with fossil fuel assets? How can Asian investors minimise their exposure? WWF’s Jean-Marc Champagne on their latest report
  • T Park: Waste-to-Energy In Hong Kong -Hong Kong’s increasing waste load by 2030 will put tremendous pressure on its management capability.  Veolia’s Nina Cambadelis introduces T PARK, a state-of-the-art sludge treatment facility that turns waste into energy while achieving ‘zero wastewater discharge’
  • Can We Build A Clean & Smart Future On Toxic Rare Earths? – Almost all smart, green & clean tech need rare earths to work, but mining & processing these are highly polluting. Lead author Liu of China Water Risk’s new report:  “Rare Earths: Shades Of Grey” explores this paradox. It is time to rethink our clean & smart future
  • Rare Earth Black Market: An Open Dirty Secret – The black market exacerbates environmental pollution from rare earth mining in China. With low prices, depleted reserves and contaminated drinking water, find out if your smartphone, tablet or electric car is party to this. Hongqiao Liu expands
  • Buying Electronics Can Pollute Our Future – This Christmas Hongqiao Liu wants you to think twice before buying that new electronic device as key rare earths & other critical raw materials are causing pollution in China. Companies also need to act & cut out built-in-obsolescence
  • E-Waste: Downside to the Tech Revolution – China is one of the largest producers of e-waste globally. Faced with mountains of toxic e-waste, Green Initiatives launched the [WE] Project in Shanghai. Co-founder, Nitin Dani on this easy, safe & scalable way to recycle phones, home appliances & more
Hongqiao Liu
Author: Hongqiao Liu
Hongqiao Liu is a Chinese journalist and policy expert who covers China, climate, energy, environment and everything in between. She currently writes for Carbon Brief, an award-winning specialist website focused on explaining climate science and policy. Hongqiao believes in the power of journalism in fostering informed discussion, decision-making and actions on tackling climate change -- the biggest challenge of our century. Her journalism brings facts, nuance and context to heated discussions about China and provides digestible information on complex policy issues. Her early career as an investigative journalist at Southern Metropolis Daily and Caixin - two of the most prestigious Chinese media - saw her publish a series of influential exposés on social, environmental and governance challenges arising from China’s emergence. Many of her work have triggered public debate, helped foster accountability and sparked critical reform of several national environmental policies in China. She also works as an independent consultant, mostly with international non-profit organisations, advising on strategic planning and policy research. Her clients include some of the most influential advocators for the public good. Hongqiao worked with China Water Risk between 2014 and 2017 as principal researcher.
Read more from Hongqiao Liu →