Chinese rare earth domination shakes up regional trade ties

China's strangehold on the global supply of rare earth metals is shaking up diplomatic and trade ties in Asia as rival economies seek alternative sources of the key industrial materials.

World Politics Review (paywall) reports that China's demonstrable readiness to curb rare earth exports during spats with neighbours, as exemplified by recent disputes with Japan over the Diaoyu Islands, has compelled economies in the region to forge fresh diplomatic and trading ties.

A string of trade agreements unveiled over the past month in Central and Southeast Asia reveals concerted efforts by China's economic rivals to overcome the Asian giant's domination of rare earth metal supplies.

Japan in particular is turning to Central Asia for supplies of rare earth minerals, with Sumitomo Corp opening a rare earth plant in conjunction with state-owned Kazakh company Kazatomprom earlier this month.

The Japanese-Kazakh joint venture is expected to commence exports of Kazakhstan's rare earth minerals to Japan as early as January 2013, providing 1,500 tonnes per year and accounting for 7.5% of Japan's annual demand.

China currently supplies 95% of the world's rare earth minerals, occupying a position not too dissimilar to that enjoyed by OPEC with respect to oil. Deng Xiaoping observed with stunning prescience as early as 1992 that China would be to rare earths what Saudi Arabia is to oil.

China's control of rare earth supplies is of grave concern to nations such as the USA and Japan, whose hi-tech and defense industries are heavily dependent upon access to such materials. Rare earth minerals are key ingredients in hi-tech sector such as renewable energy, where they needed to produce wind turbines, as well as in the defense sector where they are used as super-strong magnets in sophisticated weapon systems.

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