[New Weapon Rare Earths] China Pressures with Export Restrictions Card in Case of Diplomatic Disputes

In 2009, 'Export Restrictions' Became a Reality
Now the Government Effectively Controls Production and Prices

[Asia Economy Reporter Moon Chaeseok] In 2009, China passed the '2009-2015 Rare Earth Industry Development Plan,' a policy managing rare earth production and exports. This was during a time when the term 'G2' emerged instead of 'G1' due to the aftermath of the global financial crisis, intensifying the tensions between the U.S. and China. According to a Bloomberg report at the time, the price of neodymium oxide, one of the rare earths used in mobile phone production, surged more than fourfold within a year, from $19.12 per kilogram (about 27,500 KRW) to $88.5 (about 128,000 KRW).

In December last year, the Chinese government approved the establishment of 'China Rare Earth Group' by merging some state-owned companies such as China Aluminum Corporation and Ganzhou Rare Earth Group in Jiangxi Province, the world's largest rare earth production region. This came at a time when U.S. President Joe Biden declared a manufacturing revival and news circulated that industrial regulations, including on semiconductors, would be imposed on competitor China. The price of terbium, a heavy rare earth element in high demand, rose 15.7% over a year from $429.5 per kilogram (about 620,000 KRW) at the beginning of last year to $497.1 (about 718,000 KRW) early this year.

At the end of last year, the Chinese government's approval of the merger of major state-owned rare earth companies rapidly spread 'rare earth risks' across the global industry. There are growing concerns that a monopoly centered on China Rare Earth Group could lead to price and production control policies. Importantly, history has repeatedly shown that immediately after the U.S. imposes semiconductor regulations, China retaliates diplomatically by implementing resource production and price control policies, causing prices to surge and creating management risks for industries.

According to related industries on the 26th, China has reduced rare earth production and controlled exports whenever conflicts with foreign countries arose. Rare metals made from rare earths are used in various products such as mobile phones, semiconductors, LCD (liquid crystal display) TVs, electric vehicle motors, wind turbines, and missiles. China has been encroaching on the market for 20 to 30 years. Since the late 1990s, through low-price supply strategies, it forced the U.S., Australia, and the European Union (EU) to close their rare earth mines.

In 2009, China even introduced policies restricting rare earth exports. It passed the '2009-2015 Rare Earth Industry Development Plan,' a production and export management policy. Although it had an annual production capacity of 50,000 tons, it reduced the export quota to 35,000 tons and imposed a 20% export tariff. Although export restrictions and export taxes were abolished in 2015 due to Western pressure, the shock to the industry was significant.

The case in 2010 when China banned rare earth exports to Japan during the Senkaku (Diaoyu Islands) territorial dispute is also highlighted. This was a 'Chinese-style check' that damaged the industry of a specific country due to political issues. At that time, rare earth prices reportedly rose about sevenfold within a year. Advanced products such as mobile phone LEDs, hybrid cars, semiconductors, and energy equipment companies like wind power were hit. In October of that year, Chinese Foreign Ministry spokesperson Ma Zhaoxu stated, "Managing and controlling rare earth resources is China's sovereign right," emphasizing that "this complies with World Trade Organization (WTO) regulations."

In 2019, China again toyed with export restrictions against the U.S. From 2020 for two years, it implemented measures including the draft of the 'Rare Earth Management Regulations' (production and export control policies), a temporary production halt of up to 50% in Ganzhou City, Jiangxi Province, and approval of the establishment of the world's largest 'China Rare Earth Enterprise' (effectively government control over prices and production). In January, it enforced the 'Special Management Measures for Foreign Investment Access,' banning foreign investment in the rare earth and other mineral industries.

Ultimately, the Trump administration in the U.S. engaged in a 22-month 'trade war' with China before declaring a truce. This overlapped with the Biden administration's full-scale implementation of semiconductor equipment import restrictions. Terbium prices rose about 2.5 times over two years, from $497 per kilogram (about 717,000 KRW) to $1,751 (about 2,528,000 KRW).

Experts say China's direct and indirect control of rare earth prices is closely linked to political and diplomatic issues, urging the government and companies to actively respond through 'resource diplomacy.' Kang Cheong-gu, a visiting professor at Inha University's Department of Energy and Resources Engineering, said, "While the Roh Moo-hyun to Lee Myung-bak administrations secured exploration and development rights to some extent in South Africa, Vietnam, China, and Australia, the resource diplomacy ecosystem completely collapsed during the Park Geun-hye to Moon Jae-in administrations." He added, "In securing materials, Korea should not rely solely on China and Australia but actively pursue resource diplomacy with the public and private sectors focusing on regions where Korean companies have well-established logistics systems, such as Mongolia, Vietnam, Indonesia, and the Philippines."

Rare Earth Elements (稀土類, Rare-Earth Element)

Rare earths refer to rare minerals containing the 'rare earth element group.' They are recognized as key raw materials for advanced industries such as electric vehicles and eco-friendly energy facilities, but differences in deposits by country have become a source of resource disputes. The first rare earth discovered by humanity was 'Gadolinite,' found in a Swedish mine in the late 18th century. It attracted attention in chemistry due to its unique properties compared to common minerals, and subsequent research revealed that gadolinite contained large amounts of specific elements. These elements are collectively called the 'rare earth element group.'

The rare earth element group consists of 17 elements on the periodic table: lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb), lutetium (Lu), scandium (Sc), and yttrium (Y). All of these have strong magnetism and thermal conductivity, making them essential for electronics, electric motors, magnets, industrial lasers, and batteries.

According to the U.S. Geological Survey in 2019, about 120 million tons of rare earths are currently buried on Earth. China has the largest deposits at 44 million tons, followed by Vietnam (22 million tons), Brazil (21 million tons), Russia (21 million tons), and India (6.9 million tons). Notably, China accounts for 60% of the world's rare earth mining volume and 85% of refined product production from processed ore, making it an overwhelmingly dominant rare earth power. Last year, China consolidated its market dominance by launching 'China Rare Earth Group' through the merger of five state-owned rare earth companies.