[Viewpoint] China’s not-so-rare muscle flexing

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[Viewpoint] China’s not-so-rare muscle flexing

China employed its newfound clout as an industrial power to humiliate Japan in an ugly territorial row over waters and inhabited islands in the East China Sea. The world’s second-largest economy bowed before the new Chinese power after the latter’s threat to block Japan-bound shipments of rare-earth minerals.

China has long masked its ambitions by quietly building up power in various fields. But now it has dropped the mask and has shown its real face too soon and too coarsely. It succeeded in producing an immediate and intimidating effect, but in the long run Beijing may kick itself for its premature move.

There is no need to raise a fuss about China’s alleged trade embargo on rare earths. It is true the country accounts for 30 percent of world deposits of the hard-to-procure minerals - 17 elements - and supplies 98 percent of those resources to the global market for use in industrial applications powering clean energy products such as hybrid vehicles and wind turbines.

The United States and Australia also have resources and the capacity to produce that much. But they have halted mining as the minerals contain only small amounts of rare elements and can release toxic wastes. Processing the minerals is equally challenging.

Long ago, the United States and Australia shut down the mines and factories because of these environmental hazards. Other industrial countries also have been reluctant to dig up the resources themselves.

China, with its lax regulations and awareness of environmental hazards, jumped at the chance to dominate the industry. Many countries rushed to Inner Mongolia to get their hands on the rare-earth minerals. The resulting glut last year sent prices tumbling. The resulting crash in profitability prompted advanced markets to close down their mines.

But China went on digging regardless of the rock-bottom prices and lousy business to gain a monopoly in the rare-earths market. China pulled out all its tricks to maintain dominance in the international supply. It merged local companies to reduce quotas and banned foreign investment in the producers. It attempted to buy mines in the U.S. five years ago and Australian ones last year, but failed. Those governments blocked the takeover attempts, citing resource security concerns.

Can China continue to exercise power with its rare-earth leverage? In the long run, it’s hard to say. Global deposits of rare-earth minerals are still abundant with reserves capable of lasting from 87 years to 1,023 years, depending on the categories.

China must expect a backlash from its strategy of using natural resources as a diplomatic bludgeon. Many countries have begun to list rare earths as strategic items.

China’s threat has already renewed interest in rare-earth mining. The United States is set to reopen the Mountain Pass mine in central California. With profitability rising due to growing demand in green and modern electronic technologies, Australia and South Africa may follow suit. Last year the world’s second-largest deposit of these valuable minerals was discovered in Greenland.

As the adage goes, where one door shuts, another opens, and necessity is the mother invention. Japan is not a country that easily gives up. Its manufacturers have recently developed new technologies to make powerful magnets to produce industrial appliances and batteries using new composites that can replace rare-earth metal.

Hitachi also plans to mass-produce motors to make automotive and home appliances using cheaper, common and more resourceful ferrite magnets in two to three years. Japan is also researching technology to recycle rare-earth metals to hedge against the risk of Chinese monopolization.

Lacking in natural resources, the country plans to produce minerals. Japan is at the top of the recycling game. It has a knack for extracting rare metals from electronic waste it imports from South Korea and other countries for almost free, then reselling them at much higher prices.

China’s premature flaunting of its muscle has only stirred rancor and resentment. The world cannot tolerate arrogance. The world powers - U.S. and Europe - formed a joint front to defeat and humble Germany and Japan when their ambitions went too high.

Japan still suffers from a lost decade as the result of the Plaza Accord, an agreement among world powers to depreciate the U.S. dollar against the yen to help alleviate the U.S. trade deficit with Japan.

China can be the next target. The U.S. and European leaders have been pressing Beijing to revalue the Chinese currency. Japan may now be swallowing its pride. South Korea’s feelings for China are not amicable since receiving a cold shoulder from Beijing over the Cheonan disaster.

China should try to contain its power. Chinese smirks over defeating Japan will likely multiply its foes rather than its friends in the international community. The Chinese may believe themselves clever. Somehow, humble “sumimasen” (“excuse me”) diplomacy from the Japanese looks relatively more mature. China seems to be unaware that keeping a poker face is always a winning strategy.

*The writer is an editorial writer of the JoongAng Ilbo.

By Lee Cheol-ho
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