ABSTRACT
ABSTRACT
The decarbonisation of the global economy in response to the climate crisis and the fourth industrial revolution, featuring artificial intelligence (AI) and 5G networks (massively accelerated in response to the coronavirus pandemic), has triggered a race to secure uninterrupted access to critical raw minerals (CRMs) that are indispensable inputs for high-technology applications. Moreover, China’s Belt and Road Initiative, which unites Eurasia and Africa and loops in South America into a seamless space of trade, infrastructure and digital connectivity, challenges the dominance of traditional industrial powers (the United States, the European Union and Japan) and requires critical minerals. Rare earths, lithium and cobalt – among the most critical of the CRMs – are found in high geographic concentration, creating hotspots of contention, especially in unstable parts of the world. As economic transformations accelerate, securing access to these materials will both impact and help shape geopolitics in the years to come.
In the wake of the fourth industrial revolution and the decarbonisation of the global economy in response to the climate crisis, a new race to secure uninterrupted access to critical minerals (CRMs), namely those essential to the production of high-tech, renewable energy and defence applications, is currently underway. Given global dependence on these inputs, the possibility of resource scarcity represents a growing concern to nations and industries. While stock depletion has not yet become an issue for any single mineral, flow disruption is becoming more frequent for a number of reasons that include embargoes, conflicts, trade wars and, recently, the global pandemic COVID-19. In addition, geopolitical competition is becoming increasingly entwined with access to critical minerals because they are indispensable to the next global economic transformation, highly geographically concentrated and vulnerable to disruption.
These underlying risks have prompted major industrial nations to compile critical materials lists: the US and Japan in 2008, and the European Union in 2011.1 The selection of CRMs was based on definitions of criticality that largely focused on supply chains vulnerable to disruption and materials essential to the functioning and production of applications without which the impact on the economy and security would be high. While there is a robust debate about how best to define criticality, there is a wide consensus that the general issue of supply security is a concern to be addressed (Schulz et al. 2017; Graedel et al. 2015; Frenzel et al. 2017). These debates have also sparked the formulation of a complex critical materials agenda dictated not only by industrial concerns, but also reflecting perceived state interests in a changing global power environment.
The thunderous geopolitical shift currently underway is a result of the rise of the People’s Republic of China (PRC); its size and growth are unsettling the existing order and challenging traditional industrial powers (US, EU and Japan), which are no longer the exclusive drivers of the global economy and its future transformation. Since 2013, moreover, China’s ascent has been accompanied by a concrete ‘win-win’ vision for the socioeconomic transformation of the developing world. The Belt and Road Initiative (BRI) sets out to unite Eurasia and Africa and loop in South America into a seamless space of trade and high connectivity (land, maritime, air, cyberspace – featuring 5G networks and artificial intelligence, AI).
As a global endeavour, China and the BRI require critical minerals, thus raising the stakes over access to them in a push to lead and dominate innovation, digitalisation and the green economy. The deployment of 5G, for instance, will expand mobile networks to support a diversity of both services and devices, thereby redefining a number of industries, such as retail, education, transportation and entertainment. AI, moreover, is being rapidly developed with a promise to accelerate innovation, efficiency and sustainability in businesses and organisations. Both these technology-driven undertakings form the backbone of the next industrial revolution and their complex systems are voracious consumers of critical minerals (Greenfield and Graedel 2013).
In this kind of tech-driven world, the competition between the major industrial economies will only increase. Recognising the growing threat to its dominant position in high-tech and innovation technologies, the United States has directly attacked China’s leading global information and communications technology (ICT) solutions provider, Huawei, to curb its growing penetration in global markets. Moreover, a recent report by the Mercator Institute for China Studies (MERICS) confirmed Europe’s growing suspicion that the ‘Made in China 2025’ (MIC25) initiative’s ultimate goal may be actively to replace foreign with domestic technology and to enter international markets. According to this report, 58 percent of the value of Chinese foreign direct investment (FDI) in Europe could be attributed in 2018 to core industries (such as robotics, power equipment and next-generation IT) (MERICS 2019).
Additional systemic vulnerabilities have been brought to light by the most recent and unprecedented impact on both supply chains and demand by the unforeseen spread of the coronavirus. COVID’s effects have raised further concerns for both industry and policymakers as they seek to address issues of diversification and resilience by sidestepping previous arguments that saw disruption as purely a matter of speculation. While some believe that the free market and further innovation will ensure the flow of minerals, such a view underestimates the geopolitical impact of the developing global realignments and other asymmetric and unanticipated supply disruptions.
Moreover, the effects of the coronavirus crisis have provided a first window into how digital technologies and AI will be deployed to make up for the physical sequestration of employees and help curb contagion. In China, amidst the crisis, new applications found a perfect testing ground. 5G expansion is accelerating to meet growing demand for both remote work and healthcare and will strengthen China’s competitive edge in industrial internet, robotics, mobile e-commerce and other important economic areas that include technologies for smart cities (Ma 2020) and surveillance. In contrast to China, Europe and the United States – where the virus subsequently spread in February and March 2020 – proved both unprepared and slower in deploying effective digital solutions as they scrambled to compensate for what had clearly become a deficit.
The omnivorous material diet of all these technologies, used now on an unprecedented scale, requires almost every element of the periodic table. Topping the critical materials lists are rare earths, lithium and cobalt because they are indispensable for the functioning of high-tech applications; highly geographically concentrated, often creating areas of contention in unstable parts of the world; and in growing demand. A 2020 World Bank report finds that production of lithium and cobalt may increase by 500 percent by 2050 to meet clean energy demand alone (Hund et al. 2020).
Furthermore, their mining, extraction, processing and end of life cycle come at considerable environmental and economic cost. A closer examination of these critical minerals shows how a combination of heated geopolitical competition that overlaps with decarbonisation and the fourth industrial revolution, foreshadows an accelerated race to both access and control them. More importantly perhaps, it illustrates how China’s centralised economic and strategic planning and particular model of state capitalism continues to prove an important advantage over mutually competing democracies caught up in their inability to remedy the growing asymmetry.
The geopolitics of rare earths
In 2010, 17 elements of the periodic table, called rare earths, offered a glimpse of what resource competition over critical minerals might entail. Until then, these minerals had been largely unknown outside the mining and tech industries, though they had already become indispensable in the production of renewable resources and green technology (such as wind turbines, solar panels and efficiency lighting), high-tech applications (such as computers, smart phones and medical applications) and in the defence industry (such as missile guidance systems, smart bombs and submarines).
In fact, few scholars, strategists or policymakers had considered including them in discourses of economic statecraft and resource competition. It was geopolitics that spotlighted their enormous significance, transforming them from simple industrial inputs into materials of strategic and economic importance worthy of global headlines. The sudden realisation that China not only held a near monopoly of these critical minerals, controlling 97 percent of world production, but also might be willing to use its stranglehold to leverage geostrategic aims prompted then US Secretary of State Hillary Clinton to define it as a wake-up call to countries around the world (US Department of State 2010).
While rare earths exist in other countries outside the PRC, in most places it is not economically feasible to extract and process them. Additionally, even when it might still make economic sense to mine rare earths, both extraction and processing are toxic for the environment (Hurst 2010; Wübbeke 2013). Moreover, rare earths, part of the family of lanthanides, are not all equally valuable; light rare earths are more abundant, while heavy ones are rarer, more expensive and more critical. In fact, as the production of rare earth magnets, in particular, increases substantially in the future, it will affect rare earth pricing mechanisms with operations becoming increasingly dependent economically on a small number of individual rare earths (Binnemans and Jones 2015). Furthermore, the lead time for a mine to be brought into operation requires at least a decade and is a capital-intensive endeavour.
New technological applications have transformed rare earths into a coveted input to such an extent that China has given them the status of strategic asset in its industrial and economic development plans (Andersson 2020). Moreover, for quite some time now, China has been looking to move from being solely a raw commodities exporter of rare earths to a domestic producer of end products, thus adding value to its economy. Consequently, and in response to a number of other domestic production challenges, such as illegal mining and exports, as well as mounting environmental degradation, China first reduced export quotas of the elements by 40 percent in the summer of 2010 (Mancheri 2016). Then, in September of that same year, the PRC “unofficially” boycotted exports to Japan over an incident near the contested (by China) Senkaku/Diaoyu islands in the East China Sea (Bradsher 2010).
The rare earths crisis triggered fears of an unprecedented dependence on one supplier and stoked anxieties about China’s willingness to use economic statecraft in geopolitical disputes. As a result, it led to a steep price hike of the elements and initiated a cycle of tripartite collaboration between the EU, the US and Japan to find ways in which to innovate out of their staggering dependence on the elements by focusing on substitution, diversification, conservation, reuse and recycling. Two years later, in 2012, the EU, Japan and the US filed simultaneous complaints with the World Trade Organisation (WTO), demanding consultations with China over its restrictions on the export of rare earths, tungsten and molybdenum (Kalantzakos 2018).
Both initiatives, however, were undertaken with considerable delay. The first of the trilateral workshops took place in October 2011, a year after the crisis erupted, and the case brought against China at the WTO was filed almost two years after the height of the crisis (Kalantzakos 2018). It produced a verdict in 2014, four years after the crisis began, and it was only a year later, on 1 May 2015, that China eliminated the controversial export duties to comply with the verdict (WTO 2015).
When the crisis eventually died down, it became apparent that rare earths could offer a salient case study of how resource competition might become more pronounced in the future, particularly over critical minerals. Since then, the situation has become more fraught. The recent trade wars, particularly between the US and China, have undermined the centrality of the WTO as well as heightened political rivalries, reduced scientific collaboration and revealed a pronounced clash of economic and leadership ambitions between China and the Western powers (including Japan) (Wei 2019; Feder 2019).
Rare earths thus made an appearance at the epicentre of the trade war when the Trump administration included them in the “summer 2018 list of products” from China that would be subject to tariffs. It was a decision that made headlines for its lack of foresight, given that the United States had not mined any rare earths domestically in 2017 and instead had imported 78 percent of its rare-earth compounds from China. Similarly, the rest of the compounds that were marked as coming from elsewhere were also derived mainly from Chinese rare earths. In fact, the estimated value of rare-earth compounds and metals imported by the United States in 2018 stood at USD 160 million, an increase from USD 137 million in 2017 (USGS 2019). The decision to slap tariffs on rare earths would have adversely affected the tech industry in the United States, which is why they were removed from the final list issued by the US government in September of 2018.
The attention that the rare earth crisis brought to critical minerals in general prodded scholars, researchers, policymakers and industry specialists to identify a number of other critical inputs whose access might be at risk (Nassar et al. 2020; Hatayama and Tahara 2015). Cobalt and lithium, for instance, have also become indispensable to high tech, the green economy and the defence industry, and are also mined in only a few geographic locations. To be sure, neither cobalt nor lithium share the level of geographic singularity characterising rare earths. Demand, for these critical minerals, however, is growing exponentially, straining production capacity, affecting the environment in the areas of extraction and pitting companies and nations against each other in a competition for a new generation of vital resources.
In the case of rare earths, China continues to dominate production and supply because of its leading processing capabilities (Panchal 2019). While there are frequent reports on new locations where rare earths might be found in abundance, enthusiasm about such new discoveries has been dampened by the cold realities of high-cost financing, long lead times and significant mineral price fluctuation. The most significant rare earth mining corporation outside China remains Lynas, in Australia. China tried to acquire a 51 percent stake in it in 2009, but the Australian government refused to allow this on grounds of the strategic need to ensure that non-Chinese controlled rare earth resources were still available to the market. Indeed, following a steep market correction, in 2011, it was Japan that strategically decided to keep Lynas operational by providing a total of USD 250 million in loans and equity in order to receive 8,500 tons of rare earth products over a period of ten years. Lynas’ stock price went from USD 2.65 dollars in 2011 to 4 cents in June 2015. By contrast, during that same period, Molycorp, the US rare earth mining corporation, declared bankruptcy only to undergo restructuring subsequently (Kalantzakos 2018).
While rare earths enhance productivity and efficiency in their applications, and comparable replacements are not readily available, scientists have been examining ways to substitute or reduce the quantity used wherever possible without compromising efficiency. Still, China’s dominance continues unabated, while its own need for these materials is rapidly growing. In fact, for the first time since 1985, China became a net importer of several rare earth elements in 2018 (Li and Jia 2019; Mining.com 2019). This means that the market will soon be tightening as China imports rare earths from abroad for downstream processing.
The case of rare earths brings to light the fact that few governments have articulated, let alone implemented, an effective resource strategy (Kalantzakos 2018). As a result, China is at least a decade ahead of its competitors. Thus, rare earths made headlines again in 2019 when China “indicated” that it might “weaponise” the elements to leverage its trade dispute with the US (Reuters 2019a). Yet, the tide may be turning. The Trump administration, for instance, announced plans to collaborate with Australia to finance and develop critical minerals projects (Reuters 2019b; 2019c).
In the interim, China has consolidated the industry domestically, with six state-owned enterprises responsible for the greater part of supply (Roskill 2019). While illegal production remains a significant source of raw materials, efforts by both the local and central governments have significantly curbed the illegal rare earth exports by almost 50 percent since 2016 (Reuters 2020). Attempts to mitigate environmental degradation and efforts to clean up production are ongoing.
Nevertheless, production of refined rare earths outside China is even scarcer than the supply of mined raw materials, raising concerns for risks to the supply chain. The coronavirus outbreak affected the production of rare earths: some reports indicate that the rare earths sector was running at only 20 to 30 percent capacity during this period (Mining.com 2020). As a result, China announced that it would raise the output quota of the minerals for the first half of 2020 by 10 percent with respect to 2019. There was no mention in the government’s announcement of a smelting and separation quota for the processing of rare earth ore into material that can be used by manufacturers. Disruptions of Chinese transportation networks have also affected the distribution of rare earths to domestic and international consumers. While the coronavirus has dampened consumption of rare earths for magnet and catalyst manufacturers, shortage of supply could eventually trigger new price increases as soon as demand levels return to normal (Reuters 2020).
The scramble for lithium and cobalt
Rare earths are not the only materials that are critical for the next phase of the technological revolution. Lithium and cobalt also feature as critical minerals on CRM lists. The major energy shift underway as a result of the accelerating climate crisis indicates that fossil fuels (coal, oil, natural gas) will eventually be phased out as prominent sources of energy generation. Domestic and industrial energy needs will progressively be covered through the development of a modern smart electric grid that uses renewable energy. More specifically, one of the greatest changes is taking place in the transportation sector, which has been responsible for over 20 percent of global emissions during the last decade. It has already begun to transition to alternative energy vehicles with an expanding share of electric vehicles (EVs) (Sims et al. 2014). Both lithium and cobalt are indispensable ingredients for this major transformation.
In May 2018, the US Department of the Interior, in coordination with other executive branch agencies, published a list of 35 critical minerals (83 FR 23295) that included both lithium and cobalt in addition to rare earths. The list was developed pursuant to the President’s Executive Order 13817, “A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals” (82 FR 60835), indicating a change in approach by the current US administration that now seemed more attune to growing concerns over uninterrupted access to critical minerals (Jaskula 2019; Federal Register 2018). The European Union has, likewise, published lists that include rare earths and cobalt (among others) and underscore lithium’s criticality for battery technology (European Commission 2017; 2018). Japan, in turn, maintains a stockpile of minerals that it qualifies as rare/critical. In addition, through the Japan Oil, Gas and Metals National Corporation (JOGMEC), a government institution, it provides equity support or loans to Japanese companies for metal resource exploration projects (JOGMEC 2019). These initiatives highlight how lithium and cobalt have become coveted resources amidst heightened geopolitical competition.
Lithium
What prompted the production of lithium to grow quickly in the 21st century was the rising demand for lithium ion batteries. Hybrid and electric vehicles, which began entering the market in the late 1990s (Fishman et al. 2018), accelerated the transformation of the transportation industry. These new vehicles required the development and production of a new rechargeable high energy density battery (Dimsdale 2019). Lithium ion batteries demonstrate the highest combination of energy and power densities among rechargeable batteries. Lithium is the lightest of all metals and provides the greatest electrochemical potential in combination with cost advantages, “recharge rate, weight, maintenance, self-discharge and cycling life” (Pehlken et al. 2017). Moreover, rechargeable lithium batteries have now become increasingly indispensable for the growing market of portable electronic devices and are used also in electric tools, electric vehicles and grid storage applications. Consequently, multiple demand drivers have caused lithium production to skyrocket. According to the United States Geological Survey (USGS), world production in 2015 was 31,500 tons, while in 2018 it reached 85,000 tons (Jaskula 2020).
Lithium resources are highly concentrated in South America, especially in Argentina (17 million tons), Bolivia (21 million tons – of largely untapped resources) and Chile (9 million tons); their dominant position making them known as the “lithium triangle”. Australia follows and is estimated to have 6.8 million tons of identified lithium resources. China is next with 4.5 million tons (Jaskula 2020). The top priority for technology companies in the US and Asia has increasingly become the security of the lithium supply. This has led companies to attempt strategic alliances with lithium exploration companies worldwide (Mills 2017). While in theory there might be sufficient lithium available, what is most important is the flow rate of the mineral into the market, given the current push towards a major technological transition. In other words, disruption of supply looms large especially as the material supply chains are heavily concentrated (Kushnir and Sandén 2012; Olivetti et al. 2017).
Industry seems to be taking a more pro-active approach to lithium security than to that of rare earths (Schmid 2020, 5-17).2 Still, the PRC has continued to take steps towards increasing its strategic position in lithium production and has not been hampered by demonstrated initiatives on the part of its competitors. Chinese companies have pursued mine investments in both South America and Australia to ensure that they maintain a dominant position in downstream industries as well as an overall command of the supply chain. In 2018, for instance, China’s Tianqi Lithium, a company listed on the Shenzhen Stock Exchange, became the second largest shareholder in Sociedad Química y Minera (SQM), a Chilean mining company. It also holds a 51 percent stake in the world’s biggest hard-rock lithium mine at Greenbushes in Western Australia (Rathi 2018; Treadgold 2019). Tianqi Lithium is fully verticalised, that is, it engages in all stages of the lithium industry – mining, downstream production, processing and sales of a wide range of high-quality lithium products. These products include lithium concentrate and advanced lithium specialty compounds (Tianqi Lithium 2019). China’s biggest lithium producer, Jiangxi Ganfeng Lithium, is also vertically integrated (Ganfeng Lithium Co., Ltd. 2019).
However much economists would like to take politics out of policymaking, the reality remains that, oftentimes, unanticipated policy decisions in response to geopolitical considerations or new domestic planning priorities overturn longstanding economic scenarios. For example, EV sales have been negatively affected by both the US-China trade war and the Chinese government’s decision to cut subsidies to EV production by half in the summer of 2019 and to eliminate subsidies for vehicles with ranges under 250 km. As a result, the market impact has driven lithium prices down. China is, after all, a global leader in both the production and sale of EVs. In 2017, 770,000 EVs were manufactured and sold there and the expectation was that the number would reach 2 million in 2020. In 2018, global EV sales were 2.1 million, an increase of 64 percent compared to the total sold in 2017 (Edison Electric Institute 2019; Perkowski 2018).
Yet, EV production remains expensive, which is why China’s generous subsidies to both consumers and manufacturers were designed to help jumpstart the industry of electric bus production and passenger vehicles. Apart from the central government, cities in China also provided incentives for deploying EVs in order to reduce air pollution. These incentives included assured issuance of a vehicle license as well as greater access to carpool lanes. As a result, the change in the subsidy scheme in combination with rising fears of an economic slowdown due to the trade wars negatively affected the demand for lithium and dampened investor expectations in the industry.
At the same time, in South America political turmoil has also been a source of concern for the industry, worsening forecasts for the lithium market. Indigenous communities have blocked mines in Atacama, Chile, protesting against social inequality and environmental degradation. Not only is the mining industry responsible for 11 percent of global energy use, but its operations exacerbate water stress. Indeed, 70 percent of the mining projects of the six largest companies operate in regions which already have significant water scarcity (Hund et al. 2020). In addition, in 2018, Corfo, the Chilean development agency, introduced extremely high royalties on lithium, which made production there less competitive, especially during a global price slump (Sherwood 2019; Reuters 2019d). Argentina, for its part, is grappling with a new financial crisis that has led its currency, the peso, to lose two-thirds of its value since 2018 (Nelson 2020). Moreover, the change of government following the October 2019 election is expected to have an adverse effect on investment in new projects as well as supply levels (Morgan Stanley Research 2019). Lithium development contracts in Bolivia, the country with the largest untapped reserves, have been highly coveted and contested, with China’s rivals fiercely competing against the PRC for control in a contest that has affected local politics and investments (Deutsche Welle 2019).
Australia is currently the world’s largest producer of lithium at 42,000 tons in 2019 (Jaskula 2020). Given its reserves in a number of critical minerals, it has begun to identify its niche in CRM production and export. As many countries are now taking a strategic approach that includes diversification of supply, Australia finds itself uniquely positioned to supply not only rare earths (as previously discussed), but also lithium and cobalt. Japan has already invested there, while the Trump administration has recently initiated talks with the Australian government for closer collaboration and sourcing of CRMs. According to a 2019 government report, Australia has also been exploring possibilities of investing in downstream processing (Australian Government 2019).
Nonetheless, Australia cannot ignore or seem to antagonise China as it seeks to build its CRM advantage. The reason is that the PRC is both a large investor in the Australian mining industry and an importer of its minerals. China is, overall, Australia’s largest trading partner. Coal (at 13 percent) and other minerals constitute major exports to China because of geographic proximity (Holmes 2019). While Australia may think of itself as a controlling player in the competition over CRMs, it might find itself unpleasantly embroiled in a great power rivalry and risk becoming a hotspot during the transition ushered in by the fourth industrial revolution.
Furthermore, Australia lacks the kind of verticalisation needed for supply chain control, and acquiring that capacity could be prohibitive since labour costs are many times higher in Australia than in China. While prices skyrocketed, Australia’s mining companies focused on ramping up production. Now the price slump is having the opposite effect. Lithium production went up from 40,000 tons in 2017 to 58,800 in 2018, only to drop back dramatically to 42,000 in 2019 (Jaskula 2019). A number of companies now appear unable to restructure their debt, and efforts to consolidate producers are underway in an attempt to weather the storm created largely by the trade war between the US and China (Burton 2019). As credit and financing for new investment also tighten as a result of a new global recession triggered by government responses to the coronavirus, it will be harder for Australia to pursue its planned critical minerals strategy successfully, at least in the medium term.
Cobalt
Cobalt is a key ingredient in batteries, smartphones, laptops and electric cars (Olivetti et al. 2017) and a mineral resource whose geographic concentration more closely resembles that of rare earths. The Democratic Republic of Congo (DRC), for example, one of the poorest countries in Africa, accounts for more than 60 percent of the world’s cobalt mine production and boasts by far the largest reserves in the world, estimated at 3,600,000 tons in 2019 (Shedd 2019), three times that of Australia. In fact, copper and cobalt combined represent 80 percent of the DRC’s export revenue (Foreign Policy 2019).
Media attention focused on the Congo as the dominant producer of cobalt following a 2016 Amnesty International report (2016) that raised questions about ethical mining practices. The report drew the world’s attention to the labour practices employed by the mining industry there. Thousands of artisanal miners, including children, with no safety precautions dig deep into the earth to extract cobalt. Under pressure to demonstrate greater social responsibility, many major tech companies have expressed a commitment to improving the monitoring of their supply chains for human rights abuses, although that is difficult to achieve in practice. Partly in response to the outcry over child labour, a new mining code raised royalties for cobalt in the DRC from 2 to 10 percent in 2018 causing an uproar among foreign investors (Mining Technology 2018). Glencore (a Swiss mining company), for instance, announced in the summer of 2019 that it would be closing its mine in Mutanda because it was no longer economically viable, citing falling cobalt prices, increased costs and higher taxes as the main reasons for their decision. It was decided that the mine would be put under care and maintenance for two years. This was a significant development, as Mutanda is the world’s largest cobalt mine, producing 27,000 tons in 2018, representing about a fifth of the global supply (Barrera 2019; Reuters 2019e).
Interestingly enough, a few months later, in October 2019, China’s GEM Co. signed a 5-year sales agreement with Glencore through which it would buy a minimum of 61,200 tons of cobalt between 2020 and 2024. In a statement, GEM chairman Kaihua Xu underscored that this agreement represented “a major cornerstone in GEM’s cobalt sourcing strategy as it will support GEM’s continued contribution to the Chinese new energy market” (McKay 2019).
In the DRC, China once again stands out for developing a strategy that secures its position of influence over the industry to ensure that it remains the dominant actor in cobalt mining there. In 2018, it formed a 35-member Union of Mining Companies with Chinese capital and the blessings of both the PRC and DRC governments (Mining.com 2018). China is also the leading supplier of cobalt imports to the US and the world’s leading consumer of cobalt, with more than 80 percent of its consumption used by the rechargeable battery industry.
More recently, the coronavirus crisis impacted cobalt demand in China, offsetting the losses of stock that Glencore’s decision to shut down the Mutanda mine would have provoked. Cobalt prices had risen considerably in expectation of a tighter market and stronger demand from China. However, the spread of the virus in conjunction with the strict quarantining measures implemented by the PRC have impacted battery production for EVs produced mainly in China, cutting demand for cobalt chemicals. The industry believes that demand will grow once the virus is contained (Desai 2020).
Outside the DRC, while Australia is able to provide some level of diversification of supply, cobalt production there was a mere 5,100 tons in 2019, whereas cobalt output in the DRC went up from 63,000 tons in 2015 to 100,000 tons in 2019 (Shedd 2020). This makes the DRC the most critical player in the sourcing of the mineral and a hotspot of contention.
The impact of China’s BRI on competition for critical minerals
Until very recently, the academic, policy and technical worlds debated issues of scarcity. ‘Cornucopians’ have argued that physical depletion is not imminent, while the market and innovation will help address any short-term crises in availability. They have pointed to technical solutions such as recycling and substitution in response to any perceived scarcities. They have also championed intellectual property rights (IPRs) and patents, and expressed the belief that there will be a merger of major technology actors into a handful of dominant corporations. In this way, they have underplayed, if not dismissed, the role of geopolitics as a disrupting factor. Crises even if they occur, in their view, will be short-lived and trigger more innovation.
There is some merit in these claims. Recycling may be possible technically, but it may not always be feasible economically. Substitution or a reduction in the quantity of the critical minerals has occurred in some applications. With respect to lithium, for instance, labs have been exploring magnesium as a replacement based on its affordability and abundance. And with respect to IPRs, while IPRs protect innovation, they have been part of the ongoing frictions between Europe, the US, Japan and China, with the latter regularly accused of lax enforcement of IPR protection rules or even industrial espionage. Moreover, there has been a significant backlash against free trade agreements and unbridled globalisation in a number of developed countries. Populism and resource nationalism are in many cases rearing their head as demonstrated by the trade wars initiated by the US and spreading globally.
More importantly, there is a major geopolitical change afoot that cornucopians may have underestimated. China’s growing global power, manifested through the Belt and Road Initiative, aims to bring land, maritime, air and cyberspace connectivity to the developing world. The BRI is a project whose scale ranges anywhere from USD 1 trillion to 8 trillion. So far, it has principally underpinned energy and transport projects, which account for 38 percent and 27 percent of BRI investments and construction contracts, respectively (Kong et al. 2019). It features highways, railways, ports, airports, dams, pipelines, a modern power grid and open trade and investment networks that will complete the planet’s transformation. It is a resource-intensive, capital-intensive and labour-intensive global plan.
As principal investor, therefore, China is seen by its competitors as consolidating a web of global partnerships. Concerns abound over how a ‘win-win’ narrative among ‘equal’ partners has resulted in soaring debt for many, actually engendering a counter-narrative of neo-colonialist aspirations of the PRC. In fairness, China went out in search of resources, markets and political friends in a world that had already been divided up among the most powerful economies. The external conditions in which the PRC found itself largely dictated where to look for raw materials and how to go about securing access to them (Taylor 2010; Cheng 2018; Medeiros and Fravel 2003; Dollar 2016; Vogt 2012).
Criticism aside, the network of relationships that China has created offers both agency and alternatives to developing nations that felt constrained to rely solely on the neoliberal economic recipes for investment of Western powers. Thus, not only does the BRI permit China to consolidate its existing investments, it also allows Beijing to present an alternative vision of development to its partners in Asia, Africa and South America (Kalantzakos 2020).
China’s offer to become the one-stop-shop for the developing world poses a threat to the US, the EU and Japan, which in the postwar world dominated industry, trade, technology, defence and international institutions, and drafted development strategies, norms and systems of governance while dictating financial realities to many nations. In the ensuing competition for markets and technological leadership in a decarbonised world economy, threatened by the growing climate crisis, those nations rich in CRMs may find themselves in the eye of a raging storm. The DRC, Chile, Argentina, Bolivia and others that are resource-rich are willing and eager partners of China’s projects, while their CRMs are coveted by China’s rivals.
In response to criticism that the BRI may be an unsustainable proposition with a vision that runs contrary to what a planet in crisis requires for moving forward, China posits the greening of the BRI and a narrative of “ecological civilisation” (Xi 2017). This is the most current of top-down imaginaries and constitutes the ultimate amalgamation of socialism, harmonious society, welfare, development and a sustainable approach to environmental resources; it has become the PRC’s official call to action in line with its leadership in signing the Paris Agreement on climate change.
Furthermore, the PRC is also pursuing the creation of a digital umbrella that will allow numerous countries without their own tech giants to participate in an internet economy led by China’s tech industry. Chinese telecommunication companies have already made significant inroads into Africa and elsewhere along the BRI in markets that rely on mobile banking and the internet to keep their economies growing and connected to larger markets. All these projects require CRMs and demand will only accelerate as the BRI gains momentum.
The coronavirus pandemic, which has brought the world economy to its knees, will be a game changer for the digital Belt and Road project. In the midst of the crisis, the Chinese government gave the go ahead to introduce new AI technologies as part of the effort to stop the spread of the virus. It has also accelerated the pace of deployment of the 5G network because so many economic activities are taking place online. Though the coronavirus crisis is still ongoing and its worldwide impact may not yet be clear, it has served as a catalyst for ushering in, both quickly and dramatically, the use of new technologies into entire sectors of the economy. E-learning, for instance, has spread rapidly, with millions of students studying in virtual classrooms. As the virus penetrated borders, meetings were increasingly held online and people worked from home. Medical information, the tracking of individual movements under quarantine, new entertainment products, the exponential growth of online orders and deliveries, a subway reservation system to reinforce social distancing have all been introduced widely in China and have caught the attention of tech companies and publics on a global scale. And while there are those who believe that this crisis will also be short-lived, the changes that it has advanced are here to stay and will only grow as we move forward.
Conclusion
Geopolitical realignments, the urgency to decarbonise and the race to lead 5G and AI in a digitalised world have placed critical minerals centre stage in the competition amongst leading industrial actors. Furthermore, a global showdown of sorts that began as a US challenge to China, but has extended to other competitors, even its allies, continues to intensify and is producing much speculation and angst about its impact on the existing world order (Rudd 2020). Indeed, existing vulnerabilities were magnified as COVID-19 triggered unprecedented obstacles to free trade and engendered dramatic disruptions in supply chains. It also accelerated the deployment of new high-tech and digital applications and the introduction of AI in multiple industries.
As the global economy struggles to find a new footing and anti-China rhetoric fuels competition in an already fraught environment, the sheer size and scope of China’s Belt and Road Initiative may very well tilt the balance in the PRC’s favour. China has already invested heavily in AI and 5G technology. Through the BRI, it brings to the table the financing, the relationships and the access to critical minerals and other vital resources that it will need to transform the developing world and outcompete its industrial rivals.
These facts should not be ignored. The governments of liberal democracies, industries and policymakers should search for practical solutions such as state investment in exploration, recycling, substitution, diversification of supply chains, legislative responses, the drafting of critical materials lists and further innovation. But they may also want to consider that perhaps the most significant weakness they face in maintaining the orchestration of geopolitical affairs in this new era is their piecemeal approach to strategies of securing critical minerals and their lack of coordinated partnerships. China’s state capitalist model, which combines its economic, strategic and security interests, may offer some useful lessons in formulating a new critical minerals agenda. It may very well be that the combination of changing geopolitics and an economic transformation that has come sooner than predicted may turn into the greatest disrupter of the longstanding status quo.
Notes
1 European Commission, Critical Raw Materials. https://ec.europa.eu/growth/sectors/raw-materials/specific-interest/critical_en (accessed 14 June 2020).
2 To illustrate, in 2010, a number of companies moved to China to avoid disruption of supply. Others supported mines outside China only temporarily, and returned to China when prices and availability for export of rare earths normalised.