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China and lithium: why it’s time to retire the narrative of resource nationalism

Updated: Feb 14

By Hao Tan

This opinion piece was published in the South China Morning Post on 12 Jan. This is the author's copy which is slightly different from the published one .

If this traditional view of energy security is applied blindly to mineral resources, it may harm rather than enhance resource security in China and Western countries; nor would it help the global green energy transition.

Electric vehicles and their upstream industries were big winners in the global economy in 2021. The growth of China’s electric vehicle industry has been particularly impressive; following a market expansion of 180 per cent in the first 10 months of the year, it now accounts for about half of global EV sales.

This has led to a surge in demand for the essential materials for rechargeable batteries, including lithium, nickel and cobalt. Lithium has been dubbed “white oil” and the price of battery-grade lithium carbonate in the Chinese market increased more than fivefold over the past year.

The clean energy transition is expected to drive substantial demand from the Chinese electric vehicle industry for these mineral resources over the coming decades. Around 80 per cent of the raw lithium used in China is currently imported however, with about 60 per cent originating from Australia. Dependence on foreign cobalt is even higher – with about 90 per cent being imported, primarily from the Democratic Republic of Congo.

There is an increasingly popular view in China that it should reduce its dependence on imported mineral resources by increasing domestic mine production, and meanwhile ramp up state support for investment in overseas mining projects.

An academician of the Chinese Academy of Sciences recently called for the establishment of new national organisations for developing strategic mineral resources around the globe – similar to China National Offshore Oil Corporation, China National Petroleum Corporation, and China National Offshore Oil Corporation in the oil industry. Others are concerned that foreign dependence might leave China vulnerable, with the United States’ restrictions on the export of chips to China as an example.

Ironically, such anxieties afflict not only China but also Western countries. China is responsible for refining 35 per cent of nickel, and 50 to 70 per cent of lithium and cobalt globally. These intermediate products are supplied to both Chinese and foreign companies in downstream industries. Chinese companies are also predominant in the production of battery chemicals and battery cells.

Fears that China might weaponise this trade are even reflected in Western popular culture; the recent Netflix sci-fi satire Don’t Look Up includes a plotline where China’s control of critical resources forces the US to mine a comet crashing to Earth.

A major policy objective for many countries in the fossil fuel economy has been to increase self-reliance and diversify sources, especially of oil. If this traditional view of energy security is applied blindly to mineral resources, however, it may harm rather than enhance resource security in China and Western countries; nor would it help the global green energy transition.

Fundamental differences exist between mineral and energy resources. While a major disruption to oil and gas supplies could lead to economic and social chaos, a shortage of metal resources would impact certain industries, such as EV manufacturing, with the use of existing electric cars unaffected.

Unlike oil and gas, minerals are recyclable. Over 98 per cent of lead-acid batteries are recovered and recycled. EV batteries may achieve a high recycling rate once an economy of scale is reached.

Furthermore, mineral reserves are more of an economic concept than a geological one in many cases. As prices increase, exploration and mining intensify, often leading to expanded reserves. Data from the US Geological Survey indicates that global copper reserves were 280 million tons in 1970, but although 580 million tons were mined between 1970 and 2020, the world’s copper reserves still increased to 870 million tons in 2020.

Research has shown China’s domestic resources can meet the national EV industry’s demand for lithium. China’s dependence on imports stems largely from the mining and transport costs of these resources, mainly located in the western provinces.

China is a major exporter of some mineral products, including lithium hydroxide. In an extreme situation where imports of lithium resources were restricted, export of these products would likely be significantly affected, reducing China’s demand for mineral resources. Therefore, the populist view that the country should ensure a given level of resource supply is not consistent with the policy objective of increasing resource security.

Battery technologies are undergoing rapid development. Research on low-cobalt, or even cobalt-free batteries, has progressed fast, aiming to reduce consumption of this precious metal. However, a decrease in the use of cobalt usually implies an increase in the quantity of nickel required to maintain performance.

No country monopolises all metal resources; even in the rare earth industry, where most of the global production capacity is in China, countries such as the US and Australia have been able to rapidly develop production capacity when facing international supply shortages.

The global supply chains of critical minerals also differ substantially from those of oil and gas. While national companies play a leading role in oil supply chains, supply chains of critical minerals are led by entrepreneurs and international capital. For example, large lithium mines in Australia are jointly owned by Chinese and Western companies. Western multinationals have also invested heavily in China's lithium mines and processing facilities; in short, the supply chains for critical minerals are complex and highly internationalized.

The traditional view of energy security may not be effective even in the energy sector. Facing high oil prices in the late 2000s, China’s national oil companies made bold investments in overseas projects, but it is unknown whether this improved China’s energy security, because the oil and gas produced in overseas equity projects are not necessarily shipped back to China, but rather traded in the global markets.

Worse, a populist perspective that overemphasises geopolitical factors may prompt rising resource nationalism. Foreign investments in the resource sectors would consequently become more difficult and costly, slowing the upscaling of global EV and battery production.

As global competition for critical mineral resources continues and even intensifies, companies will base investment decisions on their assessment of the trajectories of mineral reserves, mining capacity, battery technologies, and EV markets. Competition arising from their decisions will promote more effective development and use of resources in the global EV supply chain.

But these enterprise-led activities should be distinguished from the so-called big power game. If a populist perspective is adopted to guide metal resource policies in countries, it could in fact be counterproductive for the enhancement of resource security.

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