International Law

China's Rare Earths. We Called This One.

By Dan

There are reports out today of China either planning to reduce its exports of rare earths by 30 percent or ending its exports entirely. I am betting it is the former, but either way, this should come as no surprise to regular readers of this blog.

For way back a year ago, in "China U.S. Dispute Over Raw Materials. Rare Earths Are Key," we wrote of China's plan to reduce its exports of rare earths and of how that might impact various industries:

This [WTO] complaint highlights a major issue for world trade down the road. Modern industry relies on certain metals that are actually quite rare. If export of those metals is disrupted, it will cause severe dislocations in many high tech and other businesses. For China, the big issue is actually not the metals listed above. The big issue is rare earths. China is currently overwhelmingly the largest supplier of rare earths in the world, with well over 90% market share. Rare earths are essential to produce the magnets required for motors for electric cars and for certain components used in wind power turbine manufacture. China recently imposed restrictions on the export of rare earths. It is clearly China policy to gradually force all manufacturing using China rare earths to occur in China. Without the location of an alternative supply, China is in a position to dominate electric car production market for many years. This no doubt helps explain why Warren Buffet's Berkshire Hathaway chose to buy into BYD Company, a China based battery and electric car company. [Full Disclosure: Dan has been an investor in Berkshire Hathaway almost ever since Buffet-directed investments made his alma mater, Grinnell College, the "richest liberal arts college" in the World]

As part of a similar strategy, China is seeking to control the market for other key minerals by strategic purchases outside of China. Some of the target minerals are platinum, chromium and silica sand. Like it or not, China's approach seems much more likely to succeed than the filing of disputes with the WTO.

Who was listening?

Full post as published by China Law Blog on October 20, 2010 (boomark / email).