Rare Earth Elements: India’s critical strategic deficiencies and China’s dominance – Problems and Solutions

Source:-Rare Earth Elements: India’s critical strategic deficiencies and China’s dominance – Problems and Solutions

In the 1990s China decided to use Rare Earth Elements (REE) as the engine of its growth in the 21st century. In his January 1992 tour to Inner Mongolia province Deng Xiaoping famously said “The Middle East has its oil, China has rare earth”. Broad contours of the Chinese strategy of using REEs has been to become a major producer and then use raw material to capture large parts of manufacturing value chains using its dominance in this critical 21st-century raw material. Deng realized that REEs are critical to almost all electronic manufacturing and are essential components of miniature permanent magnets (Rare Earth Permanent Magnets or REPM). These REPM are critical to making high-performance electric motors that are the engine of modern electric vehicles. REPMs are also critical for almost all green energy applications and manufacture of critical defence equipment like missiles, rockets, guidance systems, and aircraft.

Under its strategic plan China started producing REEs from its deposits at Bayan Obo in Inner Mongolia province using a cheap but ecologically destructive method. With financial and ecological subsidies, the Chinese REE industry was successful in knocking down the global prices and forced the closure of the Mountain Pass mine in the USA.

Such tactics also prevented any non-Chinese mining to attain feasibility. Having secured the dominant producing status in the early 2000s, China imposed REE export quotas and started arm twisting downstream manufacturers to relocate to China for cheap and steady REE supplies. Almost all global manufacturing was steadily forced to relocate creating massive industrialization and employment in China. The world woke up to this strategic lead when China demonstrated its capacity and intent of weaponizing REE supplies during the Senkaku showdown with Japan in 2010. China stopped REE supplies to Japanese industry and brought the Japanese electronics industry to its knees within two months. A Japanese delegation was dispatched to Beijing, where, in September 2011, Vice Premier Li Keqiang told Japanese delegates, “We’d like to cooperate: Japanese manufacturers should move their production operations to China.” In other words, by holding the “upstream” rare earth elements hostage, China sought to hasten the transfer of Japan’s “downstream” high-performance magnet technology. The impasse was broken only after a protracted WTO battle by Japan, EU and USA against China.

The indirect ecological subsidies of the Chinese state can only be matched if REE can be recovered as a by-product of an industrial activity. The largest such global opportunity exists in the Indian Ocean Region.

Geologically the entire landmass around the Indian Ocean contains REEs in the surrounding rocks. Millions of years of natural concentrating process or weathering and natural gravity segregation have enriched heavy metals including REEs into the coastline if the Indian Ocean and almost the entire coastline of the Indian Ocean are enriched in “mineral sands”. These are easily recognizable black colour sands and contain industrial minerals used in high-performance alloys, paint, abrasive, filtration, sandblasting etc.

These black mineral sands are present in the entire arc of Australia, Indonesia, Thailand, Myanmar, India, Kenya, Tanzania, Madagascar all the way to South Africa. These mineral sands also contain Rare Earth Elements. Producing REE from these mineral sands is cheap, as it comes as a by-product of industrial mineral mining and can easily compete with the subsidized Chinese REE production, even without any major subsidy. There are several examples of profitable mineral sand projects in the Indian Ocean Region in Australia, Thailand, India, Tanzania, Madagascar and South Africa. An additional possible source of REEs would be the waste tailings of such old mining projects that would be concentrated in REEs. The Chinese state has already realized such a regional threat to its strategic construct and therefore, state-backed Chinese “private” firms have been actively securing mineral sand mining concessions in the Indian Ocean Region. It is also possible that using the BRI initiative more such areas are being identified and secured by Chinese firms.

It will take a coordinated effort by global powers to dent or erode Chinese dominance in this sector. Indian dream of an electric vehicle revolution will remain a pipe dream if reliable domestic REPM supplies are not available. India has a much stronger and vibrant private industry than China in this sector, a dominant presence and historical ties in the Indian Ocean Region. In order to secure these critical strategic supplies, the Indian government could consider encouraging the Indian private sector to look overseas and secure such areas under prospecting/mining concessions. In his speech to the CII in June 2020, PM Modi announced far-reaching and path-breaking reforms in the field of strategic industries and nuclear technology research for the private sector. These would have far-reaching consequences and if rapidly implemented, this will help plug several strategic vulnerabilities in the REE sector.

The government should consider using private companies as they are nimble and better equipped to deal with constraints of working overseas than their PSU counterparts. Private enterprise has higher flexibility of rapidly scaling up operations and finding commercial success. Slight support and encouragement from the government would go a long way.

History will judge us by our response at this juncture. Resolute political leadership is now showing the way and private industry is ready and waiting. Will the government take up the challenge and be an engine of growth for the critical national security industry at the right time? Or be stuck in the historical maze of procedure-centric governance and relegate India to Chinese dominance, only time will tell!

Source:- Financial Express

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