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Business Last Updated: Feb 2, 2024 - 2:11:51 PM


China’s Second Counterstrike
By German Foreign Policy, 6 Nov 2023 
Nov 18, 2023 - 11:54:57 AM

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EU agrees on law to secure strategic raw materials to reduce vulnerabilities in the West’s economic war against China. China responds to sanctions and restricts exports of important resources.

In its power struggle with China, the EU has passed a new law to strengthen its independence from supplies of Chinese raw materials. The Critical Raw Materials Act (CRMA), approved by the relevant bodies on Monday and set to be officially adopted before the end of this year, stipulates that in future only 65 percent of the strategically important raw materials may be purchased from a single country. At the same time mining and processing are to be expanded in Europe. Currently, German companies are purchasing some of their strategic raw materials to a large extent or even almost entirely from the People’s Republic of China. Beijing, which has always been a reliable supplier, is currently beginning to defend itself against the West’s economic war, in which it is coming under increasing attacks with punitive tariffs and sanctions. It is resorting to restrictions on its exports of strategically essential natural resources – including gallium, germanium and soon also graphite. If the West persists in its economic warfare, it will face material shortages in the foreseeable future, for example, in regards to the production of semiconductors and climate change technologies.
Reducing Reliance on Raw Materials
Monday evening, negotiators from the EU Commission and the Council of Ministers reached an agreement on new regulations for providing the member states with so-called critical raw materials. This relates to indispensable raw materials for the most important futuristic industrial sectors, including for manufacturing energy transition products such as wind turbines or electric car batteries, but including the production of semiconductors or components for the arms industry. The EU depends almost entirely on imports of numerous raw materials, often from China, which produces enormous amounts of various resources itself. In some cases, China holds a monopoly on the processing of certain raw materials, which is often environmentally hazardous and labor-intensive. The Critical Raw Materials Act (CRMA) stipulates that, as of 2030, the EU will no longer be allowed to purchase more than 65% of its strategic raw materials from a single country. At the same time, benchmarks of at least ten percent for extraction, at least 40 percent for processing and at least 25% for recycling of the EU’s annual consumption of raw materials were set.[1] As a first step, it is temporarily planned that the CRMA provisions are to be applied to a list of 17 raw materials, to which others may follow. The CRMA is expected to be adopted by the end of the year.

In the Economic War
The West’s escalating power struggle against China has prompted the introduction of the CRMA. The People’s Republic has always been a reliable raw materials supplier. Meanwhile, however, it has made it clear that it will use its advantages in the raw materials sector to defend itself against the attacks in the economic war, which were unleashed particularly by the USA – for example with sanctions on the semiconductor industry. However, the EU is also becoming increasingly engaged, for instance with its plans to introduce massive punitive tariffs on imports of electric cars (german-foreign-policy.com reported [2]). If the EU does not seek to end, but rather wants to win the economic war, it has to reduce its vulnerabilities. Concrete examples are already apparent.

China’s First Counterstrike
Back in the summer, in response to US attempts to completely cut China off from high-performance chips, Beijing introduced controls on gallium and germanium exports. Both elements are needed in the production of semiconductors and germanium also in the production of night-vision devices. Recently, more than two-thirds of the germanium and nearly 100 percent of the gallium was processed in the People’s Republic. In August, when these controls came into effect, Beijing exported neither gallium nor germanium; in September, just 1 kg of germanium. In July, 5.15 tons of gallium and 8.63 tons of germanium were still being exported.[3] Apparently the western enterprises’ stocks of the needed raw materials have so far been sufficient. However, recently the prices have gone up significantly. In principle, both products could be produced in the West – for example, as by-products of aluminum smelting. However, to have the necessary facilities constructed will take time. Production in the West is also more expensive than in China. In the short term, bottlenecks cannot be excluded, possibly with serious consequences for the industry.

Looming Shortage
On October 20, Beijing launched a second counterstrike, in response to new US restrictions on the delivery of semiconductors to the People’s Republic announced on October 17. Thus beginning December 1, controls on graphite exports would go into effect.[4] Graphite is one of the primary components for the production of batteries for electric cars. According to a study recently carried out by Prognos, the Oeko-Institute and the Wuppertal Institute, on behalf of the Climate Neutrality Foundation, graphite is one of the seven indispensable raw materials, without which the technological implementation of the energy transition would be impossible.[5] Experts report that currently nearly two-thirds of the mined natural and almost all of the synthetically produced graphite comes from China. In addition, well over 90 percent of the global graphite for use in batteries is processed in China. Even prior to Beijing’s announcement of controls on the export of graphite, experts were already warning of an impending shortage of graphite on the world market.[6] Graphite can also be produced in the West; the creation of the necessary industrial facilities would also cost precious time and the production would be more expensive.

No Money for Raw Materials
Gallium, germanium and graphite are among the 17 raw materials to which the CMRA is to be specifically applied. The EU law primarily provides for accelerating the necessary approval procedures, to expand as swiftly as possible both mining and processing within the EU. In the future, the maximum permissible duration is to be 15 months for processing projects and 27 months for mining projects.[7] No subsidies are planned. The EU budget is already under stress, due to the billions spent on the war in Ukraine.

Missed Opportunity
The EU has just squandered another opportunity to secure privileged access to CRMA raw materials. Australia is one of the countries, from which it would prefer to obtain lithium. Canberra has made it known that it is by no means reluctant to have closer business ties with the EU, but in return would like to have the free trade agreement signed that has been planned for years. This has now failed due to Brussels’ unwillingness to make concessions to Australian farmers (german-foreign-policy.com reported [8]). At the same time, Canberra has largely settled its trade dispute with Beijing and is again expanding its exports to China, including lithium exports. The latter increased from US $350 million in the first half of 2021 to US $7.8 billion in the first half of 2023. Australia has thus sold almost all of its lithium to the People’s Republic for further processing,[9] while the EU came away empty-handed.

 [1] Wie die EU unabhängiger von China werden will. Frankfurter Allgemeine Zeitung 15.11.2023.

[2] See also Paradebranche unter Druck (II).

[3] China exported just 1kg of Germanium Last Month, No Gallium. asiafinancial.com 20.10.2023. See also Chinas erster Gegenschlag.

[4] China schränkt Export von wichtigem Batterie-Rohstoff ein. handelsblatt.com 20.10.2023.

[5] Klaus Stratmann: Auf diese 7 Rohstoffe kommt es bei der Transformation an. handelsblatt.com 04.09.2023.

[6] Graphite, Dominated by China, Requires the Largest Production Increase of Any Battery Mineral. instituteforenergyresearch.org 07.07.2023.

[7] Wie die EU unabhängiger von China werden will. Frankfurter Allgemeine Zeitung 15.11.2023.

[8] See also The School Master.

[9] David Uren: Despite the risks, Australian exports to China are booming again. aspistrategist.org.au 22.08.2023.


Source:Ocnus.net 2023

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