There is an interesting debate going on right now in one of the Rare Earth community networking groups of which I am a member. The debate centers around this question, “Is China really the “bad guy” in REE that a lot of media makes them out to be? Of the 5 comment responders, 4/5 answered “no, not really but I as the fifth respondent said, “I think some China bashing is absolutely justified. The arguments against my position run the gambit from “western exploitation justifies China’s behaviors to “the sky is falling claims made by mainstream media. (I can buy into that second point e.g. hysteria) Another valid point comes from another member of the community, “As long as Western consumers demand metal products at the lowest possible prices without considering the environmental cost of production or that massive energy subsidies from the Chinese government make the low price policy possible in the first place, industries will continue to shift eastwards.
So maybe I stand corrected, some of the China bashing is not fair but folks, let’s look at China in a larger context shall we? The world of REE (rare earth elements and rare earth metals) is not quite the same thing as the world of industrial metals. We acknowledge that point. Yet an outside observer of Chinese policies in regard to good old fashioned industrial metals (e.g. steel, aluminum etc) tell a very different story, one where I would argue some China bashing is not only fair, it’s justified.
Now that is not to say that the US sits here blameless. We do not. The federal agricultural subsidies we provide domestic farmers look an awful lot like the tactics Beijing deploys to boost its own heavy industries including steel production. But this article from AMR’s Kevin O’Marah explains some of the concern over China. Kevin points to six factors that ought to make any global procurement manager give pause when considering China as part of a supply chain. We’ve included five of the six points we found most relevant for metals supply chains:
- Capricious trade rulings. Kevin cites a NY Times story about a “prohibitive export tax and we’d argue that we have long reported on export tax/rebate/VAT schemas deployed by China to encourage/discourage certain imports/exports
- Rampant IP piracy one may think this can hardly matter for commodities like REE’s but in fact, China is known for stealing technology know-how. We know through credible industry sources that China has hacked into computer systems of major US producers specifically to steel trade secrets
- Exchange rate by fiat we have written countless articles on China’s currency issues. Nobody can convince me that China’s currency freely floats or is somehow “not manipulated
- Poisons, pollution and contamination I’ll leave it with the lead poisoning fiasco last year and the cadmium fiasco of this month. Don’t get me started on carbon cap/trade/tax legislation and how that would impact trade with China
- Rare earth chokehold well, that’s the topic we are covering here but Kevin makes the point that the only way to “secure supplies is to set up an operation in China but who is to say that it won’t one day get expropriated by the Chinese government?
Sorry folks but even if only one of these points is true, some of the hysteria around China seems justified to me. If an organization operates under the pretense that China is a “perfectly safe place from which to source key rare earth metals, we sure hope the mainstream media keeps up the China bashing. From our vantage point, the risks appear very real.