China protectionism threatens low-carbon industries
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China protectionism threatens low-carbon industries

As a new decade begins the world of green business may take on a more complex and distasteful hue. A ministerial announcement leaked through the state press prior to Christmas, points to some depressing road-signs for the next decade or so. Protectionism may raise its nationalistic and potentially dangerous head.

I’m afraid I’ve got China firmly in the sights again, and while we’re on firearm imagery I’m afraid the poor individual called Akmal Shaikh was murdered by the Chinese authorities just before New Year for alleged drugs smuggling.

I mentioned him in the last blog and in spite of over-whelming evidence that the man was mad, Chinese President Hu Jintao ignored calls for clemency or indeed even a medical examination. In part this happened, it is argued, because the British and Chinese governments got in a spat over who did what at the Copenhagen conference.

Anyway, China’s Ministry of Industry and Information Technology (MIIT) has announced that it will create a reserve for rare earth metals next year. The intention of its department of raw materials director, Chen Yanhai, only wriggled its way out of an obscure conference by reports in the People’s Daily. This comes on the back of a report released in August by the ministry called the ‘Rare Earths Industry Development Plan 2009-2015’, which called for greater controls over their sale and development.

These rare earths are defined as 17 metals that are considered critical in the development of low-carbon technology from wind-turbines to hybrid car batteries and much else in between and so any debate that followed MIIT’s published plan might be expected to be animated.

With the exception of Japan, virtually nothing was said in Europe or the US.

So should we credit China with looking after our global resources?

In August as the debate hotted up over these resources (primarily with a sudden strangling sound of panic from Japan’s biggest companies), the state press was pointing out that foreigners were buying stockpiles of materials because the price was low and China had to protect its natural resources.

A month later excuse number two came from director Chen’s deputy, Wang Caifeng, who said that the supply reduction was necessary to reduce environmental damage from mining.

Now call me an old cynic but I don’t buy any of this. Why?

First, prices may well have fallen during the worst global recession on record, but its hardly some conspiracy on behalf of foreign buyers. For a start China currently accounts for 95 percent of global production in these 17 metals. It also accounts for about 60 percent of consumption. Both these facts would have a serious bearing on any metals price.

Secondly, China has been reducing the availability of these materials for export, at least 40 percent over the past 10 years, so its hardly any wonder companies would jump on any price anomaly.

As for the environmental argument, har, har, har, har – pull the other one, had it much concern it could start by halting the regiments of Chinese coal miners that die in almost weekly accidents. But worse than that, the reason China is now is such a dominant position is that nearly all miners in this sector outside China (in places like Canada, Australia, South Africa and the US) closed their operations soon after 2000 when China flooded the rare earth market with inexpensive metal gained using polluting but cheap mining methods.

Now I’m not saying that China should not protect its resources, but it can hardly expect business respect if it holds the world to ransom. Demand for these metals is booming tripling over the past decade to 120,000 tonnes and it will only increase: magnets used in wind turbines can use tonnes of rare earth and the Prius hybrid car contains a kilo of neodymium and more than 10 kilos of lanthanum, both rare earth elements from China.

As pointed out before, you cannot fault China’s political elite for spotting the potential – in 1999 President Jiang Zemin said the advantages of the rare earth metals had to be developed into economic superiority. One can, however, blame other nations for allowing themselves to place the next generation of defence and industry in the hands of a single state and one with many vested interests.

Responses have been varied. Japan’s government has drawn up a “Strategy for Ensuring Stable Supplies of Rare Metals” and calls for stockpiling and securing overseas resources. It has also threatened World Trade Organisation intervention. Already both Toshiba and Sumitomo have secured alternate supplies of certain metals from Kazakhstan.

Mining and exploration companies have been seeking alternative supplies but developing them was hit by the credit crunch. Deals in Canada, Greenland and Australia are being done but are unlikely to support supply in the short term and as fast as those deals are being constructed, Chinese companies are buying them up.

In mid-2009, Australian rare earths’ developer Arafura Resources sold 25 percent of its business to a Chinese company in a deal in which some say shareholders got raped. The Australian authorities put paid to a second rare earth company deal in September when China Nonferrous Metal Mining was told it could not acquire Lynas, which is opening a new project in Kuantan in Malaysia.

But where does this leave us from a business point of view in dealing with the problem of global warming and the development of sustainable energy and future business?

We all understand that China needs to develop industry for the next century, that it needs economic growth. However the development of of low-carbon industries is as critical to the West and the globe, as it is to China. Blatant protectionism, however it is wrapped up (and in this China is on a par with the US), leaves a bad taste in the mouth especially in an industry when you are loud and demanding on being given effective subsidies from other nations.

And I’ll simply add that while I understand China’s desire for economic growth, were I a shareholder in Lynas I would not have been doing deals with any Chinese companies. Effective monopolies have never benefited anyone but the elite few.