Global supply chain interruptions are exacerbated by China’s lock on chemical processing.
In 1987, former Chinese leader Deng Xiaoping said, “The Middle East has oil, China has rare earths.” It seems that decades ago, the Chinese Communist Party (CCP) had already recognized the importance of controlling raw materials. Beyond mining and extraction, China’s efforts to hold power over the global raw materials market have included domination of processing and smelting. This processing-based strategy, combined with government monopolies and lax environmental regulations, has allowed China to become the world’s largest producer of critical raw materials.
China dominates the global supply of 21 of the 35 minerals recognized by the U.S. government as critical.
This means that China either accounts for the largest imports of these minerals to the United States, or has the world’s largest deposits, or is the largest producer.
A good example of China’s dominance in the minerals sector is that there are only three cesium mines in the world, and China controls all of them. Another example is arsenic, which is needed for the manufacture of electronics and the United States imports 91 percent of its arsenic from China.
By dominating the processing of raw materials, and through soft loans from state banks, China is able to undercut its competitors.
The 10 biggest suppliers, outside of China, collectively produce 35 percent of the world’s raw materials; while China alone produces 45 percent.
The United States, by contrast, only produces 7 percent.
China commands the global manufacture of electrical vehicles by holding dominion over the chemicals needed to make the batteries, as well as the manufacture of cathodes and anodes, which are core building blocks of lithium-ion batteries.
Simon Moores, managing director of Benchmark Mineral Intelligence, has referred to China’s lock on the industry as “a Global Battery Arms Race.”
The CCP restricts the global supply chain by dominating metal refining, as well as the production of battery-grade chemicals, which restricts the world’s ability to produce electric vehicles (EV).
A walk along the global supply chain reveals the CCP’s footprints at every level. In the upstream supply chain, lithium, cobalt, nickel, graphite, and manganese are extracted from the ground.
Hanns Günther Hilpert, head of the Asia research division of the German think tank SWP, said that China has worked strategically to control both mining and processing. China has increased its presence in the extractive stage of the value chain through Belt and Road Initiative (BRI) loans and soft power campaigns in Africa, Asia, and Latin America.
The midstream supply chain includes two areas that China dominates: refining and production of battery grade chemicals, as well as the production of cathodes and anodes.
Downstream consists of the production of lithium-ion battery cells, another area where China is the world’s largest producer.
Only 23 percent of all battery raw materials come out of China. However, 80 percent of battery grade chemicals are produced in China. They also own 66 percent of the world’s cathode and anode production.
As a result, it is no surprise that China accounts for 73 percent of lithium-ion battery cell manufacturing. Of the world’s 136 lithium-ion battery plants, 101 are in China.
Beijing has invested heavily in the refining of lithium carbonate and hydroxide, cobalt sulphate, manganese, and uncoated spherical graphite. This means that global supply chains flow toward China for crucial value-added stages.
The CCP’s disregard for human rights and democracy gives it an advantage in obtaining raw materials from conflict zones, where payments for minerals are largely going into the hands of dictators who use the money to buy weapons to oppress the populace. Many of the countries that have raw materials—located in Asia, Africa, and Latin America—are plagued by civil unrest, corruption, and a lack of democracy.
These countries typically lack independent courts and have lax enforcement of environmental protection and human rights laws. The Democratic Republic of Congo is an excellent example. It accounts for 60 percent of the world’s cobalt supply. According to a Human Rights Watch 2020 report on Congo, 4.5 million people have been displaced, 13 million are in need of humanitarian assistance, and 140 armed groups are active. In 2007, China offered the Congolese government a $6 billion infrastructure deal, in exchange for access to minerals.
Since 2012, it is estimated that Chinese investment in Congo’s mining sector has increased to $10 billion, and that Beijing now administers 30 of the region’s 40 mining companies. And yet, 73 percent of the country’s 90 million people continue to live on less than $1.90 per day.
Raw materials that are sourced from countries with low human rights and low quality of democracy have been dubbed “conflict mineral.” Corporate social responsibility, international laws, and public opinion are making it more difficult for Western democracies to obtain these minerals. In 2019, for example, the Swiss mining company Glencore shut down their mining operations in Congo, citing increased pressure to stop importing raw materials from conflict zones, among other reasons.
As a result, the global supply of 10, extremely important minerals is threatened, including antimony, bismuth, gallium, germanium, and light and heavy rare earths.
The CCP, unperturbed by public opinion or international convention, continues to import from conflict zones. Additionally, by dominating the processing of raw materials, the regime has positioned itself to control the world’s supply of the vital inputs of countless lines of consumer and defense-related products.