Rare earths even rarer

It has been reported that the Chinese government has ended its embargo on exports of rare earths. That is a relief, although it is confusing since Beijing has denied for weeks that there was an embargo on those products. Whatever the cause of the interruption in trade, this incident raises disturbing questions about Chinese thinking and behavior.

Beijing must quell those concerns. Mouthing the same reassuring platitudes is not enough; instead, China must ensure that its actions are consistent with international norms and substantiate the oft-repeated claim that it is a status quo power committed to regional peace and prosperity.

Rare earths are 17 different minerals with exotic names such as europium, promethium and yttrium that are critical to high-technology industries and have many defense applications. These uses mean that rare earths are considered to be strategic goods. Today, China meets at least 90 percent (and by some estimates as much as 97 percent) of global demand. That is not because China has a monopoly on supplies: Rare earth deposits are scattered across the globe and China only holds an estimated 30 percent of the total. China’s position in the market is in some cases the product of policies designed to undercut other producers and in other cases the reluctance of other countries to incur the environmental costs of rare earth production.

China’s dominance in the market has long been a concern of security experts. The issue became public in recent weeks when it was reported that China had suspended rare earth exports to Japan — which has no naturally occurring supplies — following the arrest of a Chinese fishing boat captain involved in a collision with Coast Guard vessels near Japan’s Senkaku Islands over which China claims sovereignty.

At first, Chinese officials denied that any embargo was in effect. But rare earth consumers — first in Japan and then elsewhere in the world — complained that shipments were being held up. Subsequently, Beijing conceded that exports might have been blocked by the spontaneous and simultaneous actions of Chinese customs officials who were personally offended by the arrest of the fishing boat captain. At the same time, some officials argued that the slowdown reflected an earlier decision to cut export quotas, a move that reflected the desire to preserve dwindling Chinese reserves and to consolidate the industry.

China’s seeming readiness to use a strategic material as a political tool is the latest in a series of alarming incidents. In recent months, Beijing has stated that the South China Sea is a “core national interest,” running roughshod over rival claimants, flexed its diplomatic muscle at the ASEAN Regional Forum meeting in Hanoi, demanded that the United States refrain from holding military exercises with an ally, and engaged in what can only be called the bullying of Japan over the fishing boat incident. When Washington threatened to bring China before the World Trade Organization for its subsidies to clean-energy industries, rare earth exports to the West were halted as well.

Not surprisingly, the result has been rising suspicion of Chinese intentions among Beijing’s neighbors and trading partners. Some even charge that China is engaged in “economic warfare.” Responses have taken several forms. Japan has been trying to rally other nations to present a unified front to Beijing on this issue. Tokyo is providing funds to help domestic industries diversify rare earth suppliers, an effort that includes searching for new sources along with recycling old materials. Australian and U.S. producers are ramping up production in once shuttered facilities.

All of this led China to end the embargo that did not exist. Late last week, The New York Times reported that rare earth exports resumed, although those to Japan were still reportedly experiencing delays. Curiously, this development occurred around the time that U.S. Secretary of State Hillary Clinton met Foreign Minister Seiji Maehara and discussed, among other things, the rare earth problem.

There is a new mentality among rare earth consumers. They are eager to diversify suppliers, develop stockpiles and reduce their reliance on China. Given Beijing’s stated desire to rationalize its rare earth industries, better shepherd its reserves and do more to protect the environment, such a response is overdue.

It is not yet clear what this incident says about Chinese strategy. Have Chinese actions been misinterpreted, or has Beijing tipped its hand? Chinese officials as senior as Premier Wen Jiabao have insisted that China is not using strategic materials as a bargaining chip. The Ministry of Commerce has pledged that “China will continue to supply rare earths to the world.”

Even if we accept official explanations and presume the most benign of intentions, Chinese decision-makers have again demonstrated an inability to understand the impact of their decisions beyond their borders. China is basing its decisions on purely national interests and priorities — some legitimate, some not — and ignoring its international obligations.