SINGAPORE (June 3): Beijing is gearing up to use its dominance of rare earths as a counter in its trade battle with Washington, according to a salvo of media reports in China that included hints from the state planning agency. Stocks of producers surged.
The US should not underestimate China’s ability to fight the trade war, the People’s Daily, a flagship newspaper of the ruling Communist Party, says in an editorial on May 29 that used some historically significant language on the weight of China’s intent.
The newspaper’s commentary includes a rare Chinese phrase that means “don’t say I didn’t warn you”.
The specific wording was used by the paper in 1962 before China went to war with India, and “those familiar with Chinese diplomatic language know the weight of this phrase”, the Global Times, a newspaper affiliated with the Communist Party, said in an article last April. It was also used before conflict broke out between China and Vietnam in 1979.
On rare earths specifically, the People’s Daily says it is not hard to answer the question of whether China will use the elements as retaliation in the trade war.
China is “seriously” considering restricting rare earth exports to the US and may also implement other countermeasures, the editor-in-chief of the Global Times, says in a tweet.
An official at the National Development and Reform Commission told CCTV that people in the country will not be happy to see products made with exported rare earths being used to suppress China’s development.
Editorials in the Global Times and Shanghai Securities News took similar tacks in their May 29 editions.
The nation’s producers have rallied hard in recent weeks on the view that rare earths could be an ace in the trade war.
Chinese President Xi Jinping visited a plant earlier last month, accompanied by his chief trade negotiator with the US, fuelling speculation that the strategic materials could be weaponised in China’s tit-for-tat with the US.
Rare earths have already featured in the trade dispute. The Asian country raised tariffs to 25% from 10% on imports from the US’ sole producer, while the US excluded the elements from its own list of prospective tariffs on roughly US$300 billion ($415 billion) worth of Chinese goods to be targeted in its next wave of measures.
The US relies on China, the leading global supplier, for about 80% of its rare earths, which are used in a host of applications from smartphones to electric vehicles to military gear. Rare earths, which include elements such as neodymium, used in magnets, and yttrium for electronics, are relatively abundant in the earth’s crust, but mine-able concentrations are less common than other ores.
China’s rare earth market is dominated by a handful of producers including China Northern Rare Earth Group, Minmetals Rare Earth, Xiamen Tungsten and Chinalco Rare Earth & Metals.
The nation has form in using the elements to make a political point. It blocked exports to Japan after a maritime dispute in 2010, although the consequent spike in prices saw a flurry of activity to secure supplies elsewhere, which would be the risk again if Beijing follows through with its threat of retaliation.
China Northern rose as much as 7.7% in Shanghai, while Lynas Corp, the biggest producer of rare earth products outside China, added as much as 12% in Sydney. Both stocks are up about a third this month. Hong Kong-listed China Rare Earth Holdings spiked as much as 41% and has doubled in value in May.
