By on September 23, 2010

A few weeks ago, a Chinese trawler rammed a Japanese coast guard vessel ( or vice versa, depending on who’s telling  the story.) The crew was sent home, the captain was arrested. This happened near some uninhabited rocks in the East China Sea, called Diaoyu islands in China and Senkaku islands in Japan. The rocks are under Japanese administration, but are also claimed by (to make matters even more complicated) China AND Taiwan. The islands sit on top of a huge natural gas field, to make matters really interesting. To get the captain home and to make a point, China has been ratcheting up the rhetoric. China is looking for a pressure point that hurts the Japanese. First, they tried to cut off the stream of Chinese tourists that go shopping in Japan. That didn’t work.

Now, China may have found something that seriously messes with traffic in Japan.

The New York Times reports that China has declared a rare earth embargo on Japan. What in the world is rare earth used for? The New York Times tells us: Rare earth is  “used in products like hybrid cars, wind turbines and guided missiles.” To be exact, rare earth is used to make magnets. From the hard drive in the computer you use to read this to huge generators, they all use rare earth. And guess what, “China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths,” says the NYT.  No rare earth, no electric motors, no electric motor, no hybrid or electric cars. And OMG, no guided missiles.

China says the NYT is smoking dope. “China doesn’t block rare earth exports to Japan,” Chen Rongkai, a spokesman for China’s Ministry of Commerce, told the Wall Street Journal. “The Japanese government hasn’t been informed” of any Chinese ban on rare-earth materials, a Japanese Foreign Ministry official said. An official in Tokyo at the Ministry of Economy, Trade and Industry also said the Japanese government hasn’t received any notice from the Chinese government on a ban. Another Japanese economic official, who watches China closely, said his office would flash a “red alert” if there would be any rare earth embargo.

As long as there is no shortage of magnets, the transfer of electric car technology to China can continue unencumbered.

Update: On Friday afternoon, Tokyo time, the captain was let go, The Nikkei [sub] reports.The day before, four Japanese had been detained in China “for having entered a military zone without authorization and illegally videotaped military targets in northern Hebei Province,” China’s Xinhua reported without giving further detail.

With matters settled, the flow of tourists and rare earth may continue.

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23 Comments on “What On The Rare Earth …...”


  • avatar
    stationwagon

    The question remains. Why would the New York Times report that there is a rare-earth mineral embargo? What would give them the idea there was, and how would this huge mistake be able to slip past fact-checkers? It is not the first time NYT has been caught lying, and making up BS. Is the NYT trying to start a conflict or is it promoting anti-Chinese propaganda.

    • 0 avatar
      Cammy Corrigan

      This adds a lot of credence to a theory I’ve had for a long time.
      When I went to Hong Kong, I expect to see and hear lots of Anti-Japanese rhetoric. But when I got there, I was wrong. Nearly everyone was driving Toyotas, had Sony and Panasonic products and travelled a lot to Japan. I asked a few locals about there feelings to Japan and they (more often than not) said “There’s a bad history, no doubt. But it is just that. History. Not to deal with Japan is to severely curtail one’s business”.
      So, I thought, “that’s just Hong Kong, what about Mainland China?”. Pretty much a similar reaction. I then asked why do so many Chinese people protest against the Japanese? My answer? “It’s only a few making the protest and probably getting a lot of media coverage. The rest just get on with it. The UK squabble with the rest of Europe. Does that mean the UK DOESN’T trade with them?” Then, it hit me.
      It is firmly in the interest of North America and Europe to create dischord amongst Asians. In one continent you have Japan, South Korea, India, China and Hong Kong. Not to mention the tiger economies of the south east. Asian will represent almost 3 billion people. A lot of economic power will reside there. So if they can create disharmony between Japan and China (undoubtedly two of the biggest powers in that block) then a good chunk of that block will squabble amongst themselves.
      I probably have my tinfoil hat on, but it made sense to me at the time and still does…

    • 0 avatar
      ash78

      Cammy,
       
      I wouldn’t call that a tinfoil hat at all…probably very sound from an international politics perspective.
       
      Reminds me of how the UK supported the US Confederacy in the early days of our Civil War. The promise of uninterrupted cotton supplies PLUS a weakened United States split into two? Perfect combination. Of course, once Lincoln was pressured into emancipating the slaves, it forced a morality issue onto the UK and France, so siding with the CSA was no longer prudent on the international stage. Many historians argue this was Lincoln’s exact motivation.
       
      Similarly, the US seems to toe that same line with China…we don’t like their communism and human rights record, but can’t afford to not be friendly with them.

    • 0 avatar
      Sinistermisterman

      Cammy, another theory is the relatively ‘recent’ (in historical terms) history of the Japanese occupation of large swathes of China before and during WW2 – not a pleasant period of time. I’m sure there are many Chinese who haven’t forgotten or necessarily forgiven the Japanese for what happened. 
      As a fellow Brit, I’m sure you’ll agree that there is still a large chunk of the British population who feel much the same way about Germany. Time marches on, but unfortunately old grudges remain.

    • 0 avatar
      PeriSoft

      Given that TTACers tend to view the NY Times as one step removed from a communist mouthpiece as it is, it seems that the majority view here would certainly not be an assumption that the Times is antagonizing China…

       
      As far as trying to start a conflict goes, it certainly seems like an odd place to do it. A rare earth embargo is unlikely, and a truly massive event if true – extraordinary claims require extraordinary truth; your own post shows that near-certain skepticism makes a fabrication like this a bad idea.
       
      It’d be much better to, say, stir something up with Iran – maybe they’re ready to test a nuke, or documents showing a planned attack on Israel show up. Everyone knows Iran’s leaders are batsh*t insane, they’re a loose canon, and nobody has any economic motivation to smack down such a fabrication. Were I to engage in some good old-fashioned yellow journalism, I’d turn in that direction.

    • 0 avatar
      joeaverage

      Cammy – you are on the right track. I’ve long believed that this is why America’s military is in two wars chasing after a relatively small group of people. It’s not strictly about security but putting pressure on Iran and other gov’ts in the middle east while creating a corporate and political Middle Eastern toehold for American interests. It’s not – in the case – so much about divide and conquer. It’s more about indirect political pressure.

  • avatar
    Robert.Walter

    If there is an embargo:

    – the Chinese are publically denying it because they don’t want to earn a reputation for doing such things their monopoly position (or invite similar methods to be used against them by anyone else in a similar position);
    – also they don’t want to provide incentive for investment, infrastructure and capacity increases for rare earth mining and refinement to be made elsewhere (as a hedge against such future behaviour by China), China may be the only game in town, until it disrupts things, or makes people really nervous;

    – the Japanese are publically denying it because they don’t want to be seen as being able to be pushed around by the Chinese, they don’t want to emphasize their (non-exclusive btw) dependence on the Chinese for a strategic material (this may cause customers to look elsewhere to anybody who offers the opportunity to diversify supply);

    The Chinese have been known to (non-exclusive behaviour btw) manufacture incidents to use as a pretext for an action, and this situation smells like one created to bring long-unresolved (IIRC) questions over sharing of mineral wealth from the disputed area.

    Obviously, if there is any currency to the reports of an embargo, or slow-down, this can’t continue indefinitely, because neither denials nor (after some point) a return to the status quo will be able to re-fill the pipeline enough to prevent down-stream production interruptions, or late deliveries of RE-containing items to the final customers … if this happens, there will be numerous confirming reports (i.e. corporate annual report detailing why deliveries and, hence, income was delayed…)

    Questions are:  a) how much RE is in the pipeline, b) how soon before it is depleted, c) if depleted, at what point will overtime produciton be unable to recover the situation, and d) who has more to loose here, China or Japan, and, hence, who will blink first?

    EDIT: Given the strong rhetoric coming from the very top of the Chinese political hierarchy, it will be interesting to see how this is resolved in the region where “saving face is so ingrained”…

  • avatar
    Stingray

    I don’t get it, is there a ban or not. Or is it a subtle non official move.
     
    We can live without hybrids… but not without generators, computers and electric motors. And even that is open to debate.
     
    Relying on a monopolistic supplier doesn’t seem like a smart move.
     

    Something new is learned everyday.

    • 0 avatar
      PeriSoft

      Of course, long-term it’s not going to do the Chinese much good either. They manufacture half the damn stuff using RE themselves – so either they’re going to refuse to export it all, which is a pretty obvious non-starter as it would destroy their economy, or they’re going to keep manufacturing stuff for other people, which would reduce the impact of the embargo enormously. I don’t really see an upside for them.
       
      Also, it’s not like there’s much choice about relying on a monopolistic supplier; it’s not like someone said, “Hey, let’s only get RE from China” – RE is mainly found in China. I don’t think there are big seams of the stuff half a mile under Akron that nobody’s bothered to do anything about.

  • avatar
    OldandSlow

    I’m looking to hear more about this developing story or non-story – but someone, somewhere leaked this version of the RE story to the Times.

  • avatar
    Chicago Dude

    Not completely true.  Induction motors don’t use rare earth materials, and they are becoming the motor type of choice for power generation, industrial machines, and even electric cars.
    Not to mention that the only reason China is the main exporter of rare earth materials is because the huge mine in the US shut down a decade or so ago because the operator was sloppy about waste management.
    And also…  The US Department of Defense found a mother lode of rare earth materials in Afghanistan a few years ago.  Strange that the discovery was never published until this year.

    Australia and Canada are both in the process of commercializing huge new discoveries of rare earth materials, and the mine in California (the LARGEST know deposit in the world) has been given EPA approval to reopen now that a new company is in charge.

    • 0 avatar
      Robert.Walter

      As I said, they don’t want to give (additional) incentive for investment and capacity to be made somewhere else…

      One other thing comes to mind, once the capacity you mention comes on line, the Chinese will loose a big stick … this could be the reason behind the timing of this squabble…  get Jpn to blink, and give concessions on mineral rights, before the option of dual sourcing opens up.

  • avatar
    blowfish

    Land of the rising Sun, was probably only country in the Universe vehemently denied about the atrocities and unapologetically done to Middle Kingdom during the WWII and infamously Rape of Nanking.
     
    In the their education books more than  didnt feel any remorse of all that but simply not even mentioned it.
    Now 65 yrs later Middle Kingdom had rose to the occasion, Premier Wen decided to have a small show down.
    The jap should just let the Trawler Capitano go and get on with their lives. I read somewhere, as made the plot thickens was the Capitano’s needed to be home for his sick Mother, subsequently passing away, but he’s being incarcerated he cant attend the funeral. The Jap could ask for a huge bond as to guarantee the Captn to return for the trial just like the American girl in Iran. So the matter can settle quietly without a big confrontation. ( I am sure Bertel our main man in Middle Kingdom can correct any errors & omissions here )
     
    The Fishing Terrace Island, had been disputing for 40 some yrs or more longer. Back then MKingdom never had much of a Sabre to rattle at all, now the tide has turned, the sabre had grown to be an Excalibur.
     
    Once source says, China could cut off the Coal to Japan, as MK had been a Coal importer for few yrs now, and being buddy with Nippon, MK still sells Nippon the Coal at a better price. The contract will be up next Spring, if this Capitano not be home for Christmas or any time soon,
    Nippon will soon be what John Belushi had said on the SNL ”  Cheeburgy, cheeburgy, chip, chip, no coke pepsi cola”
    They need the coke to cook the iron to steel. Sadly these coke can be worth than the coke that floats from Bogota Columbia.
    http://en.wikipedia.org/wiki/Coke_(fuel)

  • avatar
    Mr Carpenter

    If the Japanese are smart (and they are!) then this will be a wake-up call (whether it is real or not) to diversify suppliers and “assist” alternate suppliers to get moving and selling rear earths – they’d be especially smart to invest in CANADA because the US economy is so unstable. 

  • avatar
    blowfish

    Now there is a talk about Middle Kingdom’s tourist dropping off to Nippon, these tacky tourist may not have much of any klasse but simply loaded with Mullas, if u in the tourist biz, is like Santa Klaus comes early.
     
    OT The well heeled folks form Middle Kingdom has started to buy up flats in London area, trying to make some dough from the Olympic to come.  From 500,000 to 1 mil quids.

  • avatar
    George B

    Bertel, If I understand the geography of that part of the world, the highest profit market for the natural gas would be Taiwan via undersea pipeline.  Probably not going to build a pipeline across a deep underwater trench to distant Japan.  Going to other markets would involve ships and conversion to LNG which would cut into the profits.  Can the three countries involved cut a win-win-win deal to develop this gas field where Taiwan gets low price gas, Japan gets ownership/royalties, and China energy companies get work and profit?

  • avatar
    Robert.Walter

    IHT reports that Japan caved to China.

  • avatar
    porschespeed

    Reality check,
     
    The only reason the ChiComms took over the world production of REs was price.
     
    The US has plenty, and was only driven out of the business by Chinese slave-labor wages and 19th century environmental standards.
     
    As there may now be a profitable market for the civilized world,  the US is going to restart the abandoned sites.
    Mis/dis info at the core.

    • 0 avatar
      Robert.Walter

      I am talking about is a point/very short-term range in time. 

      Supply and demand is not infinitely elastic nor is supply itself instantaneous (except when it comes to shutting off).  When there is a near-monopolist on the supply side, it doesn’t really matter how much potential supply there is, or even near-term supply is coming on-line, if the supplier decides to restrict/eliminate supply before the consumer can tap-into alternate supply sources.

    • 0 avatar
      porschespeed

      Robert.Walker,
       
      True enough, it will probably take the US 10 years to reboot the RE infrastructure. No arguement with that.
      We could do it in a month if there were a true crisis, but barring that, teh ChiCons are gonna rule the roost for a minute.
       

    • 0 avatar
      Robert.Walter

      More info.  Only scanned, but it is interesting to see how much RE-processing infrastructure and know-how was already purchased by and moved to China.

      Apparently, Deng Xiao Ping targeted RE in the 1980’s a a key choke-point which should be developed, and in 1995, China Inc. purchased GM’s Magnaquench (that would have been part of the old Delco-Remy) operations in Indiana.  Despite the promise to maintain facilities and jobs, not long after, for various reasons, the equipment and jobs went to China.

      PS, there is also info in the article which corroborates much of what you posted above.

      But it is both embarassing and scary as to what has happened over the past 20 years … shipping money to the Middle East has help build-up people that don’t like America there, and shipping money and technology to China has helped build-up a country that will look after its own interests first (one of which is not caring too much about the US – as long as the money keeps flowing in fast enough to fund the purchase of raw materials from around the globe … this, afterall, is what is necessary to make hyper growth of domestic consumption and related jobs affordable and possible and sustainable.)

    • 0 avatar
      porschespeed

      Robert.Walker,
       
      Agreed it has been a non-stop giveaway of our capital since the early 70s.
       
      The meta question is do we acknowledge it and deal with it, or not.
       
       
       

  • avatar
    OldandSlow

    Day 3 of this story:  There are no quotas on rare earth materials – if you do your manufacturing in Communist China.  The semi-official story as of yesterday was that Japan had exceeded its quota for the year.
     
    This has been a pivotal year in Sino-Japanese relations. Earlier in the year, there were strikes in the automotive sector for higher wages, but only at those plants that supplied Japanese manufacturers.  Then there was that recent decree that electric vehicle manufacturers will have to turn over all their technology to their Chinese manufacturing partners.  Now, this hiccup in the supply chain for rare earth elements.
     
    Move along folks.  There is nothing to see here.  There is no need to worry. Please feel free to invest further in Communist China.

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