China shoots itself in the foot by trying to corner rare-earth market

Green-tech firms are trying to produce batteries that do not need raw materials in short supply

PUBLISHED : Monday, 02 June, 2014, 10:35am
UPDATED : Tuesday, 03 June, 2014, 1:07am

Apparently, somewhere in the universe, a little Japanese electric-battery-making-firm's stock recently soared, and I was surprised to find out about this from my mum's next-door neighbour in a small Maryland city called Greenbelt.

This neighbour was one of the early adopters of electric vehicles and is part of a group lobbying the local government to roll out incentives to widen the ownership base of these cleaner cars.

The concept is exciting, and China will likely be out of the loop on the discovery process

There are surely countless like-minded devotees in little towns all around the world watching the electric-car space with similar enthusiasm.

If its claims are true, the company, Power Japan Plus, has created a technology that allows batteries to charge more quickly and last much longer, which means fewer charges and ameliorates "range anxiety" and thus widens the potential demand for electric cars.

But there is another, interesting story about the cutthroat global race for green technologies.

Power Japan Plus's electric-car battery does not use any conductive metals, including rare-earth metals, common to traditional lithium ion batteries. Its "dual carbon" technology is based on cotton fibre - the material Thomas Edison used to make carbon fibres in his light bulbs.

A limited supply of the raw materials used in electric-car batteries has long threatened to cap growth in the industry. Some of those raw materials - the rare-earth metals - are produced primarily in China, which at one point attempted to effectively stop exporting the stuff.

If this action spurred the initiative to find alternative technologies, then China may pay a high price for trying to corner the rare-earth market.

China became the world's leading producer of rare-earth metals in the mid-1980s. Its prodigious output led to a supply glut, so mines shut down elsewhere in the world.

China's attempts, beginning in 2009, to severely restrict rare-earth exports were viewed by some as a ruthless attempt to force more foreign companies to move onshore with their production of hi-tech products used in the defence, energy and consumer electronics industries. At any rate, it would have given an advantage to Chinese companies competing in these areas.

Eventually China compromised, with less drastic export restrictions, but Beijing is still appealing a World Trade Organisation ruling that its bans violated global trade rules.

China says it just wants to cut pollution and conserve this precious resource; others say, "yeah, right".

As a Saudi prince once explained in the 1970s to compatriots who wanted to cut oil output and drive prices higher: If a country with a precious resource limits supply too ruthlessly, it risks encouraging mass investments in alternative sources of energy.

This is exactly what China did by threatening to corner supply in the rare-earth metals market; it encouraged a hunt for alternative inputs.

After the export-ban scare, mining companies raised funds to restart rare-earth mines in Australia, the US and elsewhere. And, clearly, green-tech companies are also looking to produce batteries that do not even need rare earths and other raw materials that have a limited supply, such as lithium or graphite.

Thus the cotton-based technology Power Japan Plus is launching. We have no idea whether this alternative battery type will start a new revolution in electric vehicles or just be another flash in the pan. Many online commentators are sceptical.

But the concept is exciting, and China will likely be out of the loop on the discovery process. This is a likely a matter of trust.

Note also that the world's most successful electric-car innovator, California-based Tesla, prefers to partner with Japanese and Korean companies and is planning a huge battery plant in the US rather than outsourcing to a country like, say, China, which is already a huge producer and has many of the raw materials.

Power Japan Plus was at an Indianapolis electric-vehicle show last week trying to round up interest and investors; most online industry commentators see Tesla or Japan's Panasonic as the big companies likely to explore using this technology.

These days, China seems to have trade-related tiffs on every front. Hong Kong auditors now might be kicked out of the mainland; US consultancy firms like McKinsey are strangely in the line of fire of revenge after the US accused China of industrial espionage; foreign companies based in China complain of harassment.

If more and more intellectual exchanges are driven from China's shores - either owing to retaliation, protectionism or lack of trust - this can't be good for the country's goal of moving higher up the technology value chain.