The strategic significance of rare earths and nickel is transforming global economic landscapes, with China and Indonesia at the forefront of this resource emancipation. Delving into their collaborative and competitive efforts, we uncover how these nations are reshaping industries and influencing international markets.
The doctrine of developmentalism – that countries develop best by educating their people, fostering strong domestic markets and imposing high tariffs on imports – enjoyed a golden age postwar. By 1969, says Naomi Klein, the Southern Cone looked more European than Third World. Workers in new factories formed strong unions that negotiated middle-class salaries and their children went off to study at new public universities. By the Fifties, Argentina had the largest middle class in South America, while Uruguay provided free health care to its 95% literate people.
An earlier post, How America Impoverished the Ninety Percent, examined America’s post-war anti-development policy, and another post recounted how the WTO rules were designed to prevent most countries from providing better lives for their people. In this the third part of the trilogy, we look at two case studies of countries that attempted, against WTO resistance, to earn more from their natural resources.
Rare Earths, Common Problems
Extracting rare earth ores is a polluting, low value-added activity, making it undesirable for wealthy countries, and China’s development only picked up the 1970s, after Deng Xiaoping observed, “The Middle East has oil, China has rare earths.” Deng’s endorsement coincided with closures of US mines on environmental grounds and, by the 1990s, China accounted for 95% of global supply. By 2000, Beijing had strategically leveraged rare earths for technological innovation across sectors like space, defense, and energy and acquired America’s rare earth technology leader, Magnequench (with Deng’s son-in-law as Chairman).
In 2001, China imposed controls on REM exports but, when Beijing reduced export quotas by 40% on environmental grounds, prices soared, 60 Minutes called the restrictions ‘a national security threat,’ critics accused China of using rare earths as leverage in international negotiations, and competitors argued that the difference between foreign and domestic prices unfairly advantaged Chinese firms, calling the move ‘disguised protectionism’. As export restrictions forced price up, gangs developed illegal mines and smuggling (20,000 tonnes in 2008) deflated prices and caused supply problems for local producers. Finally, the WTO found Chinese practices inconsistent with its WTO commitments and forced it to abolish export duties in 2015. Beijing substituted a resources tax and proceeded with its industry consolidation.
By 2021, the six leading REE miners had formed China Rare Earth Group, controlling the bulk of processing patents, 90% of global REM processing, 75% of critical REM products (think high-Gauss magnets for MRI).
The rare earths market, valued at $2.1 billion in 2010, was worth $6 Billion in 2023, on track to $14 billion in 2030, ‘driven by a unique blend of market drivers and a dynamic outlook’. And China is capturing an increasing share of the increased value.
Indonesia
Indonesia’s 2014 ban on nickel ore exports evoked the same reaction as China’s REM export ban: like China’s, it removed 40% of the world’s supply.
As it had done with China, the EU complained to the WTO that the move was an anti-competitive and trade-restricting and the WTO agreed, saying that Jakarta could not demonstrate a critical shortage of domestic nickel, and the IMF pressured Jakarta to scale back its ban.
But Indonesia stuck to its guns, labeling the WTO ruling ‘economic imperialism unfairly disadvantaging developing nations,’ arguing that it’s protecting its national economic interests from exploitation by foreign incumbents who possessed refining knowhow and equipment. The results were predictable:
Australia is no longer competitive in the nickel market, largely due to Indonesia’s carefully planned domination strategy of boosting industrial policy in critical minerals processing with the backing of Chinese investments. Teesta Prakash.
Australia has given its nickel production industry a rescue funding boost, signalling the depth of the struggles faced by its miners amid plunging global prices. Feb. 2024. Kyunghoon Kim.
Follow the money
In 2013, Indonesia exported raw nickel ore worth $6 billion. By 2023, nickel exports hit $33 billion. In the interim, Chinese state banks and stainless steel giant Tsingshan Holdings had invested $2 billion and the BRI had financed the infrastructure, roads, accommodation and power plants for mining and refining. Today, battery makers like BASF, Eramet, Hyundai and LG are moving into the nickel industrial park, with its housing compounds, a hotel, an airport and dedicated cable and satellite.
In 2022, Zimbabwe banned exports of raw lithium ore and, in November 2023, China’s Sinomine invested $300 million to commission a spodumene (20,000 tonnes per month) and a petalite (30,000 tonnes) processing plant.
Resource curse, resource redemption?
China and Indonesia and Zimbabwe have shown how to benefit fully from great natural wealth. The road to emancipation from the resource curse is officially open.
