Bromby: Let’s give China credit for its rare earth dominance
(And, while we’re at it, let us also allow some kudos for the Carter administration over its strategy for acquiring Chinese strategic metals.)
The bottom line is that China did something that laissez-faire Western governments cannot seem to manage: setting an economic target and getting there.
This post is, to some extent, a follow-up to Jack Lifton’s yesterday on China and rare earths, in which he remarked that “I think that a specter is haunting global capitalism: the specter of the success of a uniquely malleable capitalism with Chinese characteristics”.
I recently re-read a 2010 paper by a U.S. Army analyst Cindy Hurst published by the Institute for the Analysis of Global Security. The paper, China’s Rare Earth Elements Industry: What Can the West Learn? shows how the West lost the plot. She says that in its early years Mountain Pass in California was the largest rare earth mine in the world. During that time American students and professors were greatly interested in learning about the properties of the REE. Then, as China began to gain a foothold in the industry, interest seems to have waned. Why? According to one professor she quoted, students tend to move to what is “hot” at the time, as there they can make the most impact both as students and later in their careers. In this case, advanced biofuels seemed the new “hot” thing.
In China, as Hurst pointed out, things were quite different. Nearly 50% of graduate students who were coming to study at the Department of Energy’s Ames National Laboratory were from China; and each time a visiting student returned to China, he or she was replaced with another Chinese visiting student.
In 1986 the Beijing government approved the National High Technology Research and Development Program, known as Program 863. A good deal of the money for the program went to rare earths technologies.
Get our daily investorintel update
Eleven years later, in March 1997, Hurst describes how China announced Program 973, then the largest basic research program in China, which also covered rare earths.
And, talking of students, Xu Guangxian attended Columbia University from 1946 (when Chiang Kai-shek’s Kuomintang was still in power) until 1951 and he received a Ph.D in chemistry. Hurst tells how he returned to take up a post at Peking University and he was later caught up in the Cultural Revolution and went to a labour camp. After his release in 1972, Xu began the study of praseodymium, then in the 1990s launched several rare earth programs, many of which were vital to China gaining dominance in this industry.
But, as Hurst points out, since the 1960s China had been deploying teams of scientists to research more efficient methods of extracting rare earths (although, as Baotou attests, there is still someway to go).
Between 1978 and 1989 China managed to increase rare earth output on an average of 40% a year, according to Hurst. The end result, as we know, was that China started exporting (comparatively) large quantities of REE, causing global prices to plunge.
And, in more recent times, China has moved to become the dominant force in magnet technology.
As Harry Lime (played so memorably by Orson Welles) said in that classic movie, The Third Man, “in Italy for 30 years under the Borgias they had warfare, terror, murder, and bloodshed, but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love − they had 500 years of democracy and peace, and what did that produce? The cuckoo clock”. Likewise with rare earths, it seems − and which takes us full circle back to Jack Lifton’s point about how Chinese capitalism has evolved.
The West has known since (at least 2009) that China was going to restrict rare earth exports, by one means or another. Six years on, what has the West achieved to secure its own sources (as opposed to the rare earth explorers who have persevered without the back-up their Chinese competitors received)?
Meanwhile, it seems the much-maligned (at the time and even now) Carter administration had a few clues about how to manage to the strategic metal needs of the United States. In 1981 the Los Angeles Times reported that the U.S. was the main buyer of the increasing tonnages of strategic metals (tungsten, uranium, molybdenum, vanadium and germanium) being exported by China. The newspaper quoted Chinese officials saying, in the 1979 when the U.S. agreed to sell China technology with both civilian and military uses, the Carter administration talked the Chinese (in return) into increasing their exports of the rare metals needed by American industry.
InvestorIntel is a trusted source of reliable information at the forefront of emerging markets that brings investment opportunities to discerning investors.