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

– by Dr. Amit Tripathi

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 a Chinese dominance, only time will tell !!

Modified form of this article was published in Financial Express Digital on 4 August 2020 – click here to read that

In the 1990s China decided to use Rare Earth Elements as engine of its growth in the 21^st 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 Chinese strategy of using REEs has been – to become major REE producer and then use dominance raw material to capture large parts of global manufacturing value chains using its dominance in this critical 21^st 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 REPMs 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 defense equipment like missiles, rockets, guidance systems, aircrafts.

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 these 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 USA. Such tactics also prevented any non-Chinese mining project to attain feasibility. Having secured the dominant producing status in 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 island showdown with Japan in 2010. China stopped REE supplies to Japanese industry and brought 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. Largest such global opportunity exists in the Indian Ocean Region.

There are several examples of profitable industrial mineral sand projects in the Indian Ocean Region in Australia, Thailand, India, Tanzania, Madagascar and South Africa. Additional possible source of REEs would be the waste tailings of such old mining projects that would be concentrated in REE containing monazite. Chinese state has already realized such regional threat to it 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. China recently permitted the import of these mineral sands in to mainland China with the caveat that importers would submit all nuclear material recovered to the Chinese state companies.

India has continuously restricted monazite splitting by private companies and therefore lost out on downstream industrial activity. Permitting monazite splitting by private industry with the same caveat of providing ALL nuclear material to DAE would not only create environment for explosive downstream industrialization but also permit electric vehicle manufacturing boom. This would be especially useful at this time when USA is looking to diversify industrial supply chains away from Chinese influence areas. Indian insistence on PSUs ONLY policy is restrictive as their ability to ramp up production and product segregation has not been adequately demonstrated to global value chains. Many global companies prefer to work with nimble, flexible and profit driven private industries rather than deal with rule and procedure-centric government entities.

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 private, solid banking system and a vibrant stock market that is much superior to China. Thousands of small Indian firms have strong family and business tieups and are a dominant player in the Indian Ocean Region. In order to secure these critical strategic supplies, Indian government could consider encouraging 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 private sector.

These would have far reaching consequences and if rapidly implemented, this will help plug several strategic vulnerabilities in REE sector. MPXG Exploration is an Indian Company with large international expertise that is aware of several such opportunities and can support any initiative to build a consortium of Indian companies and secure such opportunities in the region. 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 a Chinese dominance, only time will tell !!