China’s position at the centre of global supply chains and current geopolitical tensions have led major economies to start “de-risking” from China. However, the supply of critical minerals is of mounting concern, while China’s foreign policy stance of weaponizing trade has ruffled some feathers in the West.
But to what extent is China “the problem” regarding critical mineral supply chains? This question should not be addressed through a one-sided, geopolitical lens; it requires a more nuanced understanding of China’s multifaceted critical mineral strategies.
The China challenge
While China may not organically hold the lion’s share of global mineral resources, it has dominated the refining process as the world’s largest importer of critical minerals, which it processes and supplies to the rest of the world.
The United States, India and Germany follow China as huge importers; the United States, Chile, Switzerland and Australia have also recorded big increases in exports of raw, semi-processed or processed critical minerals.
China faces the familiar challenges of dependency, supply disruption and price fluctuation. Given its role as the world’s largest manufacturing hub and the source of numerous green technologies, the country expects to continue to experience shortages and supply challenges across a broad spectrum of critical minerals.
Critical mineral strategies worldwide
Governments have rolled out various policy responses to secure access to critical minerals. For example, the European Union’s toolkit has called for increasing the production and recycling of critical minerals at home and building partnerships to facilitate trade and investment in the critical minerals sector abroad.
Similarly, the United States has developed a multi-pronged strategy to strengthen critical mineral supply chains and diversify away from China, including re-shoring supply chains among “trusted partners,” bilateral arrangements with allies and broader partnerships under the United States-led Minerals Security Partnership and Indo-Pacific Economic Framework (IPEF).
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As China remains a key player in the global economy, measures that seek to reform critical mineral supply chains should not exclude the country.
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At the same time, resource-rich economies, such as Indonesia, Chile, Mexico, and Zimbabwe, have used export restrictions, nationalization, and other tools designed to foster domestic processing facilities. The most prominent examples are nickel refining and electric vehicle batteries in Indonesia.
While all backed by legitimate concerns and strategic goals, these responses are predominantly inward-looking and could be a potential source of significant disruption to critical mineral supply chains.
Chinese strategies and policies in a nutshell
China’s critical mineral strategies originated in the 1970s with the rare earths industry, which achieved unparalleled scale and efficiency while simultaneously facing challenges, including illegal mining, overproduction, smuggling, depletion of natural resources, and pollution.
A balanced approach emerged to facilitate industrial reforms to protect natural resources and the environment through technologies, innovation and sustainable development.
The fairly recent National Plan for Mineral Resources, 2016-2020, identified 24 “strategic minerals” metallic and non-metallic minerals and energy resources. It also outlined the country's overarching strategy for the mineral resources industry, combining inward and outward-looking policies.
Inside China, the focus is on fostering mining activities, improving the efficient use and preservation of minerals, upgrading industrial structures, advancing innovation, and promoting a circular economy and the “green development” of industry. Externally, the focus has been on promoting international cooperation in mining in China and abroad.
A balanced narrative
Viewing China’s critical mineral strategies exclusively through a geopolitical lens breeds misconceptions and confrontation.
The “de-risking” strategy envisaged in the G7 Hiroshima Leaders’ Communiqué of 2023 is a case in point. Despite being touted as more moderate vis-à-vis the more radical notion of “de-coupling,” there is little daylight between the two approaches. De-coupling and de-risking come to mean the same regarding policy prescriptions and practical outcomes.
However, the development of China’s approach to critical minerals suggests that a more balanced narrative is warranted. That is, the key driver of these strategies has been China’s domestic economic needs and policy priorities.
China’s economic pressure
China’s recent use of economic pressure on Australia and Lithuania is difficult to justify. A notable example involving critical minerals occurred over a decade ago when China restricted rare earths exports to Japan during a dispute over the East China Sea.
Contrary to the popular narrative, empirical data has suggested that the restrictions came from China’s efforts to reduce its rare earths export levels and did not target any specific economy.
More recently, China imposed export controls on germanium and gallium. While this measure also generated economic coercion concerns, it was widely seen as a response to US restrictions on advanced chip and other critical technology exports to China. In this context, both sides have taken coercive actions while invoking national security.
The lesson for China from its coercive actions against Australia and Lithuania, is that such actions threaten the global community, provoking strong reactions. The resulting reputational cost for China can, therefore, be disproportionately high.
Moving forward through cooperation
As China remains a key player in the global economy, measures that seek to reform critical mineral supply chains should not exclude the country.
For example, the IPEF Supply Chain Agreement can achieve better outcomes by involving China in developing collaborative mechanisms to tackle supply chain risks, non-transparency, non-market policies and unnecessary trade restrictions.
Alternatively, inclusive fora such as the World Trade Organization can also be used to discuss the same issues.
The prevailing narrative based on geopolitics, which regards China as the risk, can be counter-productive if the goal is to minimize disruptions and uncertainties in global supply chains. A more balanced narrative is the first step towards a coherent, globally coordinated policy response.
Weforum