At one point in Diamonds
Are Forever, the 1971 James Bond thriller, Agent 007 asks the villain, who
has covertly amassed a stockpile of valuable gems: "What do you intend to do
with those diamonds?"
"An excellent question," the evil criminal
mastermind, Ernst Stavro Blofeld, replies with a diabolical grin. "And one which will
be hanging on the lips of the world quite soon." Bond gets his answer quickly enough: a satellite-rigged laser powerful enough to hold the world hostage.
Hu Jintao is no Blofeld, but if Chinese leaders are trying
to provide a readymade plot for the next Bond film, they may have succeeded
with today's news
that China has quietly begun blocking Japan's supply of rare earth elements, used
in everything from Priuses and iPads to wind turbines, oil refineries, and
Such a move, which Chinese officials have denied, would
represent a sharp, sudden escalation in the ongoing diplomatic dispute
between China and Japan over an island chain in the East China Sea. Real or
imagined, the threat is credible, and it's been a long time coming.
In 1992, Deng Xiaoping, the late Chinese leader, reportedly declared, "There
is oil in the Middle East; there is rare earth in China." His comment spawned a
crash program to develop and exploit China's vast reserves of the metals,
estimated at 57 percent of the world total. It wasn't easy: Though most of the
17 elements known as rare earth minerals (numbers 57 through 71, as well as a
couple others, on the periodic table) are not
actually all that rare, they are difficult and costly to extract. Seven
years after Deng's remarks, his successor Jiang Zemin ordered the Chinese state
to go a step further. "Improve the development and applications of rare earth,"
he instructed, "and change the resource advantage into economic superiority."
If anything, Deng was too generous to the Middle East, which
today pumps less than half the world's oil and still relies heavily on Western expertise.
Today, China has become dominant in rare earths in ways the Saudi royal family
could only dream, driving others out of the business, and now controls as much
as 97 percent of the global market. According to a recent paper
by Cindy Hurst, an analyst for the U.S. Army's Foreign Military Studies Office,
that figure may even understate China's supremacy: Beijing has also poured
untold millions into basic and applied research on rare earth elements, and
runs two state laboratories employing hundreds of scientists devoted
exclusively to the subject. The world's only two journals dedicated to rare
earth metals are in Chinese.
This isn't the first time rare earths have been big news. Last
year, Britain's Daily Telegraph reported
that Beijing was considering altogether banning its exports of the stuff -- a
story that provoked alarm among high-tech manufacturers and Pentagon planners. Any
such ban has yet to be imposed, but China has actually been tightening its chokehold
over the strategic commodities for several years now, preferring to use the
minerals in its own factories in the hopes of moving up the supply value chain.
Chinese premier Wen Jiabao hinted
at the thinking in a forum Wednesday with American business leaders. "An iPod
is sold at $299, and China in the manufacturing link will only get $6 for it,"
he complained. As of 2008, China was consuming more than half of the rare earth
elements it produced, while smugglers also absconded with a significant chunk.
Initiatives are now underway to revitalize the industry outside
China -- a business once dominated by the United States. In April, Molycorp Minerals, a U.S. firm based in
Colorado, announced a $500
million plan to refurbish Mountain
Pass, a California mine that, before closing in 2002 due to low-cost
Chinese competition and environmental concerns, had once been the world's
leading producer of rare earth metals (ironically, China nearly acquired Mountain
Pass in 2005 as part of its failed bid for Unocal, the U.S. energy company that
then owned the mine).
South African, Canadian, and Australian companies are all
racing to develop their own mines, though as the New York Times' Keith Bradsher notes, these plans are fraught
with risk and questionable economic rewards. "One potential threat," Hurst
warns, "is that, while China's reduction in export quotas is currently causing
prices to go up, if China were to turn that around and bring prices back down,
this could potentially put these and other companies out of business even
before they become fully operational."
There is also talk of setting up a U.S. stockpile for rare
earth elements, as South Korea and Japan have already done, but any such plans
for an American "strategic metals reserve" remain embryonic. It may be time to
get cracking: According to the latest projections by Dudley Kingsnorth, an
industry consultant, China could be consuming nearly its entire annual
production of rare earth elements by as early as 2014.
Some rare earth elements matter more than others. Among the
most important is dysprosium, a silky, silvery metal used to make hybrid
motors, lasers, nuclear reactors, and computer hard drives. Ninety-nine percent
of it is produced in China through a laborious, expensive process (appropriately
enough, the element's name is derived from a Greek word meaning "difficult to
get at"). Mountain Pass doesn't contain significant amounts of dysprosium,
which is critical for the so-called permanent magnets used in many critical
components of American defense systems, such as precision-guided munitions --
and Chinese officials have warned
that their supplies are running low.
All this has many in the U.S. government and the defense
industry worried. An April 2010 report by the U.S. General
Accountability Office estimated that it will take as many as 15 years before
the United States can rebuild its domestic rare earths industry -- assuming a
number of legal, technical, and financial hurdles can be overcome. The Pentagon
is studying the military's vulnerability, and is expected to come out with its
initial findings later this month -- but the GAO has already found "a wide
variety of defense systems and components," including the M1 A2 Abrams tank, "that
are dependent on rare earth materials for functionality and are provided by
lower-tier subcontractors in the supply chain." The Department of Energy is
working on its own plan, and the House Armed Services Committee has scheduled a hearing on the issue.
In the meantime, Hu Jintao may not have a space laser pointed
at our heads, but if you see him fighting the urge to pet a white cat or curl
his pinkie finger to his lips, you'll know why.