PIIE Warns About China's Control Of Rare Earths

In the light of the transition away from fossil fuel–based energy, this paper highlights the importance of understanding who controls vital parts of the global supply chains of critical minerals and rare earth elements (REEs), Working Paper 22-12 of the Peterson Institute of International Economics (PIIE) reported late on August 10, 2022.

Photo Insert: Rockwood Lithium Mine in the United States

In the paper, Luc Leruth of Tbilisi University, Adnan Mazarei of PIIE, Pierre Régibeau of the European Commission (EC) and Luc Renneboog of Tilburg University said an analysis of direct ownership does not reveal the real sources of control over the decisions of companies in the supply chain.

Production is geographically concentrated and new analysis of firm ownership structures reveals that China and a handful of other countries exert significant control over supply. China is a major player in the production of cobalt, lithium, and rare earth elements, but copper and nickel supply chains are more diverse.

While mineral reserves are widely dispersed, a single corporate entity may be in control of several large international mining firms, awarding them significant influence over global supply chains of critical minerals.

Companies along the supply chain are not necessarily incorporated in the countries in which mining and production activities take place and shareholders can exert influence through multiple layers of subsidiaries.

What the authors found out was that China’s control over the global value chains involving critical minerals and REEs extends beyond what is commonly assumed. It also sheds light on environmental, social, and governance issues in the countries in which mining and/or production take place.

They advocated increasing transparency regarding the sources of control to better assess and manage economic and geopolitical risks, enhancing recycling to reduce dependency on foreign supply, avoiding protectionist and trade-reducing reactions and encouraging research and development (R&D) in order to speed up the adoption of technologies of substitution.

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