China built a rare earth empire-India is still stuck in the mines

Despite hosting the world's third largest known reserves of rare earths, these critical minerals will remain a critical challenge for India

 

Rare earths have made rare headlines ever since China effectively wielded its rare earth exports (particularly permanent magnets made with rare earths) as a weapon in its trade war with the United States.  China produces about 70 per cent of the global supply of rare earths and almost 90 per cent of rare earth magnets, and its dominance in this sector will not dissipate anytime soon. Restrictions on rare earth metals and magnet exports have hit our automobile industry, particularly electric vehicles (EVs), hard. They are also used in medical devices, smartphones, wind turbines, semiconductors, missiles and aircraft. We should, therefore, be prepared for more disruptions, if the six-month truce between China and the US is not extended.

 

India now plans to incentivise large-scale magnet production and is hunting for rare earth suppliers worldwide. Resources in African, Latin American, and Southeast Asian countries have been identified. However, from locating geological reserves to mining, processing, and producing metals, the process is so complex that merely identifying geological resources is geopolitically insignificant.    

 

China’s dominant position in rare earths production has been decades in the making, based on an industrial strategy, technological research & development, as well as unlocking its geological resources. In the late 1980s, Chinese planners identified strategic materials as a key element in plans for China’s modernisation. Deng Xiaoping is credited with having said as early as 1992, “The Middle East has oil, China has rare earths”. Oxford Energy Studies, in an October 2023 paper on how China achieved its dominance of global markets (China’s Rare Earth Dominance and Policy Responses), identified the major factors: Early moves into the industry, state investment along the supply chain, export controls, low labour costs, and decades of low environmental standards. In the 1990s, China declared rare earths “protected and strategic minerals”. Export quotas were introduced, and the export of rare earth concentrates was banned.

 

China’s policy shifts reflected its success in developing a complete supply chain — from mining and crushing thousands of tonnes of rock, to beneficiation and processing of oxides through chemical cracking, and solvent extraction for separation of individual rare earth elements. Some 80 per cent of the mine-to-metal cost lay in energy inputs, labour, and chemical reagents, where China’s capacities — and lax environmental controls — gave it a cost advantage. Thereafter, China adapted technology developed in the US and Japan for permanent magnets, and built industries on a world-beating scale. By the early 2000s, China became the world’s largest exporter of rare earths and rare earth products, at costs low enough to make other countries curtail production, or close down and source their requirements from Chinese companies.

 

China also acquired raw material resources abroad. In neighbouring  Myanmar it traded directly with the insurgent Kachin Independence Army to import materials containing scarce heavy rare earths like terbium and dysprosium, which are vital for defence applications like missiles and smart weapons.  

 

China demonstrated, as early as 2010, that it could use rare earths as a trade weapon when it cut off Japan from rare earth exports for some months over a maritime dispute. Reduction of export quotas (particularly for heavy rare earths) in the same year also adversely affected other industrial trade partners. Japan, the European Union and the US then responded with strategies to diversify supply sources, but these have had limited impact, except for moderation in Japan’s dependence on China. (Japan invested in Australian mines and a processing facility in Malaysia.  Approaches to India faltered on the rock of our regulatory obstacles.) 

 

The Mineral Security Partnership (MSP) was set up in June 2022 by 14 developed countries to bolster critical mineral supply chains independent of China. India joined the group a year later. The MSP does not have its own funding but encourages private capital and state-backed funds to invest in critical mineral projects, including rare earths among its priorities.  China took note of the MSP as a Western tool for “all-out competition”, but remained sanguine that its dominance in rare earths would be unaffected, as it had advantages in equipment for upstream mining, midstream smelting, and downstream electrolysis technology.

 

A decade of experience suggests that the Chinese confidence was not entirely misplaced. It retains dominance in world markets, because progressing from mine to magnet is a technologically complex and, at present, highly polluting path.  China’s advantages in the economics of extraction, processing and separation enable its companies to manipulate prices to curb competitors. It keeps tight controls over technological know-how, and is even restricting foreign travel of experts. And it “manages” the environmental costs that delay approvals of projects elsewhere. In the US, the Pentagon has now taken control of a rare earth producer to hasten domestic magnet production.

 

India has long experience of extracting rare earths — mostly light rare earths — from monazite and beach sands. Yet despite hosting the world’s third-largest known reserves, India’s production is less than 2 per cent of China’s output. Policy and regulatory obstacles block the exploration and development of further resources. Public hostility towards mining and processing has also not helped. Until there is a change in industry practice, and government and civil society recognise the criticality of mining, critical minerals will remain a critical challenge for India.

 

The author is a former foreign secretary