Asia's Rising Energy and Resource Nationalism: Implications for the United States, China, and the Asia-Pacific Region

Rare Earth Minerals and Commodity Resource Nationalism

39 the national bureau of asian research nbr special report #31 | september 2011 YUFAN HAO is Professor of Political Science and Dean of Social Sciences and Humanities at the University of Macau. He can be reached at . WEIHUA LIU is a PhD candidate of the Faculty of Social Sciences and Humanities at the University of Macau and a Lecturer at Xi’an International Studies University. Weihua can be reached at . Rare Earth Minerals and Commodity Resource Nationalism Yufan Hao and Weihua Liu EXECUTIVE SUMMARY This essay analyzes the recent changes in China’s rare earth elements (REE) policy and their implications for world REE production and consumption, as well as for Sino-U.S. and Sino-Japanese relations. MAIN ARGUMENT China’s reform of its REE industry and its restrictions on REE exports are domestically driven. These changes are aimed at solving the sustainable development problem within its REE industry—resulting from disordered mining and processing, overexploitation, and environmental deterioration—and are not necessarily meant to take advantage of foreign countries. Western countries’ misinterpretation of China’s export controls on REE, particularly amid Sino-Japanese tension in fall 2010, reflects a certain degree of mistrust toward China. POLICY IMPLICATIONS • If the U.S. recognized Chinese REE policy as a domestically driven action rather than a behavior aimed at subjugating foreign countries—an economic decision rather than a political one—the issue might not be put on the already crowded agenda of the U.S.China Strategic and Economic Dialogue. • If both China and the U.S. could cooperate on the exchange of REEs and environmentally friendly technology, or if the U.S. invested more in REE production in China, then a win-win solution might be obtained, and these important strategic resources would be better protected and utilized. Meanwhile, the U.S. would have enough time to develop new, efficient technologies that substitute for or improve the usage and recycling of REEs. 41 RARE EARTH MINERALS AND COMMODITY RESOURCE NATIONALISM u HAO AND LIU I n July 2010, China’s Ministry of Commerce announced that it would cut rare earth element (REE) exports by 72% for the second half of 2010.1 Half a year later on December 28, 2010, and despite international outcry, Beijing announced its 2011 REE export quotas would be 14,446 tons, further cutting its outbound shipment of REEs by more than 11%.2 This curb heightened global concern over China’s monopoly on the production of REEs. The American economic Noble laureate Paul Krugman criticized China’s export restrictions on rare earths in the New York Times, calling the country “a rogue economic superpower, unwilling to play by the rules.”3 The U.S. Trade Representative’s office made it clear that the United States was “very concerned about China’s export restraints on rare earth materials,” promising that it would discuss the matter with other parties and even consider bringing the issue before the World Trade Organization (WTO).4 Rare earth elements are a group of seventeen metallic elements comprising the lanthanides, which have atomic numbers from 57 to 71, plus scandium and yttrium, which have atomic numbers of 21 and 39, respectively, and possess properties similar to lanthanides. The elements with atomic numbers from 57 to 64 are subclassified as light REEs, while the elements with atomic number from 65 to 71 and yttrium are subclassified as heavy REEs. In addition, the elements with atomic numbers from 61 to 67 are sometimes called middle or medium REEs. REEs are often described as a “treasure trove” of new materials, the “vitamins of modern industry,” or “materials of the future,” due to their wide applications in the high-tech and defense industries. The 35 strategic elements officially recognized by the United States and the 26 hightech elements recognized by Japan include all the REEs except promethium.5 Additionally, the world has witnessed a steady growth in the consumption of rare earth oxides (REO) in recent years, increasing by 8.4% annually from 1997 to 2007.6 How could China’s restriction of REEs arouse such an astonishing level of concern from so many countries? Why has China decided to restrict its REE exports despite worldwide objections? What might be the potential impact on the REE industry? And what might be the implications of China’s decision for regional geopolitics and Sino-U.S. relations? China has the largest rare earth reserves in the...