China’s Technopoly
Have you ever wondered what phones are made up of? Of course, there’s the glass screen, and the sleek aluminum exteriors, but what’s inside?
Rare earth metals actually! These “vitamins of the industry” are used in our iPhones, PCs — even military equipment!
Now, what if I told you that they aren’t really that rare?
Even though gold and silver are actually statistically rarer than these “rare” earth elements, they cost less to produce. Why is that? Well, while rare earth metals may be more common than gold and silver, the reserves in which they come are often contaminated up to 17% in thorium, a naturally-occurring radioactive species.
Another issue with mining rare earth elements is that the processing needed to extract the metals creates a chemical soup and a “tremendous amount” of solid waste according to the US Environmental Protection Agency. As a result of these side-effects of rare earth metals, there were environmental policies put in place, making it difficult to mine rare earth elements in many countries.
Now back to China, the reserves there actually have very low levels of thorium, making it much simpler to mine the rare earth metals. Due to this, China actually supplies 95% of the world’s rare earth elements and has a ridiculous monopoly! Another interesting fact is that contrary to the amount they supply, China actually only holds 23% of the world’s rare earth metals, so why does it provide more than 4 times that percentage?
In simple terms, China is rich enough to mine.
The mining of rare earth metals is very expensive. It costs a fair bit to process the material, and it only gives a yield of about 8%, so it is quite difficult for companies that mine to stay in business. For example, the Mountain Pass Rare Earth Mine in California once supplied the majority of the world’s rare earth metal demand, but it shut down since there was not enough profit being made — even though there was still ore left over.
China, however, with its strong economy, is able to absorb the large costs, in addition to providing the metals at a lower price due to its cheap labour, overpowering the competition. Last year actually, one of China’s largest companies; the China Northern Rare Earth Group High-Tech Co. made a profit of US $87.8 million — not too bad!
This monopoly of theirs means they have control over the production of practically all the technology in the world.
… and they took advantage of this in 2010, by reducing the rare earth metal supply by 40%. This caused Chinese companies to have a comparative advantage and technology prices to skyrocket all around the rest of the world! It became so much of a problem that the United Nations had to step in and confront China about misreporting their produce. Eventually the issue was resolved, but it definitely demonstrated China’s control over the production of technology around the world.
After this incident, fears arose that China will withhold supplies again, so other companies started putting out their own rare earth metals, like Lynas. Lynas is another large rare earth metal company, based mainly in Australia. However, extracting the metal in Australia has proven to be difficult due to the environmental laws there. Did that stop them? No! In order to bypass these policies, they now ship the raw material to Malaysia, a developing country where the environmental laws are weak.
The Lynas plant in Malaysia is set to become the world’s largest processing facility of rare earth metals.
China’s monopoly has been threatened by Lynas in recent years, and as a result, it’s monopolistic companies have been aiming to keep the monopoly that they currently have. In order to compete with prominent competitors such as Lynas, they’ve attempted to buy mines around the world to increase their hold over the industry.
This competition has led to lower prices for rare earth elements, however these low prices need to have lower costs as well. The market pressures for cheap rare earth metals lead managers to skimp on environmental protections, and the effects can be seen clearly. China’s rare earth mining has resulted in a toxic cocktail 11 square kilometers in size with extremely large quantities of thorium.
In the case of rare earth metals, even though the world may not like China having yet another monopoly; perhaps it is better. A monopoly would allow companies to invest more funds in the environmental aspect of mining. So, while we all may love technology and its impacts on our daily life, we must always think about where it comes from, and what ecological impact it may have.
Written by Mara Bitir, Writer for the Junior Economist
