The US-China battle for chips has just got more intense what with Beijing imposing new export restrictions and expanding its power over State-Owned Enterprises to tighten access to critical and rare minerals produced in China.
The supply chain conundrum in this domain has become more challenging as China has, in recent weeks, made it considerably harder for foreign companies, particularly semiconductor manufacturers, to purchase rare earth metals and other minerals mined and refined in China, reports the New York Times.
Beijing, which is already the dominant producer of rare minerals worldwide, has started using export restrictions and its power over State-Owned companies to regulate access.
The mining and refining of rare minerals, crucial ingredients of today’s most advanced technologies, is thus set to become even stronger.
This will give China the ability to switch the tap on and off at will, making other countries reliant and dependent on Beijing.
This situation presents a clear and present national security threat to the US and other countries wanting to maintain a balance in advanced technologies and in some cases, have an edge over China.
The owner of both these plants is a Canadian company, Neo Performance Metals whose refineries produce 99.9% of the world’s dysprosium, mostly at a single refinery in Wuxi, near Shanghai.
The reality is that China today produces almost all the world’s supply of these materials.
The new restrictions that came into effect on 1 October 2024 solidify that market dominance and exporters must provide the authorities with detailed, step-by-step tracings of how shipments of rare earth metals are used in Western supply chains.
That has given China greater authority over which overseas companies receive scarce supplies.
The other step that China has taken is that it is taking greater corporate ownership of the mining and production of the metals.
In a recent deal, the last two foreign-owned rare earth refineries in China were acquired by one of the three state-owned companies that already runs the other refineries in China.
Pertinently, China’s recent moves to take control of the supply chain, include other chemical elements that are needed by manufacturers of semiconductors.
On 15 September 2024, for instance, China’s Ministry of Commerce restricted the exports of antimony, a material used in semiconductors, military explosives and other weaponry.
Last year, the Ministry imposed export controls on two other chemical elements, gallium and germanium, also required to make chips.
Further, China has tightened the flow of information regarding their mining and production of rare earths, labelling them as State Secrets.
Last month, the Ministry of State Security announced that two managers in the rare earths industry had been sentenced to 11 years in prison for leaking information to foreigners.
The primary reason for concern with this development is that these materials form the basis for advanced technology, including semiconductors used for Artificial Intelligence.
Both the US and China occasionally impose export controls on the components that they produce, while developing supply chains with trusted allies and partners.
A White House statement last month said that China had cornered the market for processing and refining of key critical minerals, leaving the US and its allies and partners vulnerable to supply chain shocks and undermining economic and national security.
This recognition became evident even before this latest development and was particularly so, during the Covid pandemic.
Additionally, the West has experienced such shocks before. In 2010, for two months, China had banned exports of rare earth metals to Japan in the course of a territorial dispute.
Countries have been trying to diversify supply chains since then, but this has proved to be difficult as competing with Chinese companies, which have lower production costs and have been willing to cut prices and sustain financial losses is often an uphill task.
From a Chinese perspective, its latest action is aimed at conserving scarce natural resources, discourage the proliferation of weapons and protecting China’s national security.
However, if one digs a little deeper, one finds that Beijing wants to monopolise the supply chain and make countries dependent.
Notably, rare earths from China are used in American-made F-35 stealth fighters as well as in a number of other applications such as wind turbines, electric car motors, camera lenses and the catalytic converters on gasoline-powered cars.
The forecast of the International Energy Agency is that clean energy industries like wind turbines and electric cars will need seven times as much rare earths in 2040, compared to what they required in 2020.
The New York Times gives the example of dysprosium, a rare earth metal that sells for over $100 a pound.
Producing ultrapure dysprosium required for the computer chip to run artificial intelligence programs, is also difficult and time consuming.
This rare earth metal is produced at two refineries still in foreign hands.
The owner of both these plants is a Canadian company, Neo Performance Metals whose refineries produce 99.9% of the world’s dysprosium, mostly at a single refinery in Wuxi, near Shanghai.
Neo recently announced that by the end of the year, it would sell an 86% stake in the Wuxi refinery to Shenghe Resources, a Chinese company whose biggest shareholder is China’s Ministry of Land Resources.
Neo is closing the other refinery, 400 miles north in Zibo, China, and transferring its equipment and personnel to Shenghe.
The sale of the Canadian-owned company to a Chinese firm, is significant because dysprosium is highly heat resistant and makes it an important component of advanced semiconductors.
The importance of this metal lies in the fact that Nvidia and other computer chip manufacturers now use ultrapure dysprosium to make capacitors for all their chips.
China’s ever-stronger control over rare earth supply chains have accelerated efforts to set up supply chains in other countries.
The challenge is that of scale and quality of the rare earth metal which China mines and produces makes it difficult to immediately replicate.
For example, Solvay, a Belgian company does refine tiny quantities of dysprosium in France.
Similarly, the Australian company, Lynas, has reported that it would start refining dysprosium in Malaysia by next year.
The sole American rare earths mine, in Mountain Pass, California, has low concentrations of dysprosium in its ore. MP Materials, which owns the mine, has a Defence Department contract to upgrade its sophisticated refining equipment so it can extract dysprosium.
The practical problem is that rare earth refineries often take years to get going and even scaling up production will take time.
With the battle for advanced technology well underway between the US and China, the latest development does create an uncertain ground for the US and its allies as it seeks to maintain an edge over China in this domain.
Producing ultrapure dysprosium required for the computer chip to run artificial intelligence programs, is also difficult and time consuming.
Notably, it took Neo seven years of trial and error to master the 100-step chemical process at its Wuxi refinery.
Few mines outside China (and Myanmar) have commercially viable concentrations of dysprosium.
In previous decades, Chinese companies have been busy buying stakes or rights to production in mines in Tanzania, Greenland and Australia.
China has also gained an edge through advances in chemistry that allow refiners to extract more rare earths at lower cost.
China has 39 universities with programs to train engineers and researchers for the rare earths industry.
This gives China an edge over its Western counterparts. The Chinese supply chain monopoly over rare earth metals and minerals is a clear and present danger to the world.
This is because China wants to develop a monopoly and a market order that it can control and give it the ability to squeeze other countries in terms of their requirements.
With the battle for advanced technology well underway between the US and China, the latest development does create an uncertain ground for the US and its allies as it seeks to maintain an edge over China in this domain.
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