China’s Dominance Over Critical Minerals Faces New Challengers

It was only 10 months ago that François-Philippe Champagne, Canada’s industry minister, approved the acquisition of Canadian miner Neo Lithium by the Chinese state-backed Zijin Mining Group. National security concerns aside, Champagne pointed to Neo Lithium’s assets in Argentina and sure skeptical that Neo Lithium is “really not a Canadian company”.

Chinese miners may have taken the deal as a good sign that they could continue to buy Canadian minerals without hindrance. His relief would prove to be short-lived.

In a dramatic turn, Ottawa Announced on October 28 that foreign state-owned companies seeking deals in Canada’s critical minerals sector from now on “will be approved on an exceptional basis.” A week later, champagne tidy three Chinese firms will divest from three Canadian lithium miners, including two operating in Argentina.

The surprise intervention suggests a hostile approach to Chinese investment in minerals. That has not always been the case. For years, Western countries have ignored the national security implications of critical raw materials, ceding vast mineral reserves to China just as the green transition was taking off.

In 2013, with financing from the China Development Bank, Tianqi Lithium outbid its American rival and took over the Greenbushes mine in Australia, which has the highest-grade lithium deposits in the world. Same signature then acquired a 24 percent stake in SQM, Chile’s largest lithium producer, in 2018 under then-President Sebastián Piñera, who sought to boost private investment in the mining sector. In the Democratic Republic of the Congo, a Chinese company successively bought two of the largest cobalt mines in the world by Freeport-McMoran, an American company, without attracting attention in the Obama or Trump administration.

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Such negligence has allowed China to dominate the supply of the minerals needed for electric vehicle (EV) batteries, which are critical to the energy transition and the fight against climate change. The West also lacks refining capacity, so it must first ship raw materials to China for processing. In 2022, Chinese is expected to produce 74 percent of the world’s batteries, with shares made in Europe and the United States trailing 16 and 7 percent, respectively. As China’s dominance of the global battery market became hard to ignore, the safety of minerals has finally returned to the radar of Western politicians.

Fears of potential supply chain disruptions were confirmed by Russia’s attack on Ukraine. the war has to close neon production in Ukraine, which supplies about half of the world’s semiconductor-grade neon. Meanwhile, Russia exports 15 percent of the world’s nickel and 21 percent of the world’s palladium, respectively, are used in batteries and catalytic converters. In February, concern about possible sanctions on Russian metals send nickel price to an 11-year high (the price has since fallen). Given the geopolitical rivalry between China and the West, dependence on Chinese minerals is not only commercially undesirable but also threatens the strategic autonomy of the West.

These concerns have led governments to rethink their industrial policy, with the United States in the lead. In June, the State Department unveiled the Minerals Security Partnership, which includes Australia, Canada, South Korea, Japan and other allies. The objective is to reinforce thefriend propping” of critical minerals supply chains, roughly translating to reducing reliance on China and Russia for minerals, metals, and energy. the congress is in expansion the scope of the Defense Production Act to channel funds to “the technological and industrial bases of” Canada, Australia and the United Kingdom.

The EU also abandoned its free trade orthodoxy and unfolded the Critical Raw Materials Law in September. When Champagne justified divestment by stating that Canada prefers “foreign direct investment from partners who share our interests and values,” he echoed a sentiment widely shared among democracies.

Despite the lofty rhetoric, the pace of disengagement will vary by country. Take for example Australia, which has a history of supplying iron ore and lithium to China. According to the report by the University of Sydney and KPMG, a consultancy, the value of Chinese investment in Australia fell by 69 per cent in 2021 after the diplomatic spat over the origins of COVID-19. Australia has also diversified its trade relations by selling more minerals to Japan, South Korea and Vietnam while reducing the export of minerals to China. However, Australia has failed to unwind existing Chinese investments. At the International Conference on Mining and Resources last week, its resources minister objected to forcing China to divest from lithium mines and said that the projects “will stay as they are”.

Still, the West has a good chance of catching up with China in the race for critical minerals. China owes its head start to a variety of state support, such as subsidies to processing plants at home and the policy of bank financing for foreign purchases. By implementing a combination of industrial policies and investment selection, the United States and Europe give their investors equal access to credit and allow their manufacturers to grow rapidly. That is a first step in the right direction.

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