Beginning today, official Washington hosts a visit from China’s Vice-President Xi Jinping, widely seen as the successor to current President Hu Jintao, who steps down later this year as head of China’s Communist Party, and cedes the presidency in 2013.
The visit highlights a number of issues that make the current U.S-China relationship contentious. For followers of American Resources, the obvious question is whether rare metals — and rare earths in particular — will be on the bilateral agenda.
According to the long-time China hands I’ve spoken with, the short answer is No. (In spite of a Congressional effort spearheaded by Colorado’s Mike Coffman to put China’s rare earth quotas on the docket in the wake of last week’s WTO ruling on China’s industrial metals export policies.) Key issues expected to dominate the closed-door sessions will range from currency valuation and the rebalancing of the Yuan and Intellectual Property (IP) rights and China’s interest in getting serious about IP piracy, to human rights (think Tibet and Internet/social media freedoms) and the role of China’s hybrid State-Owned Enterprises (SOEs), commercial behemoths that blend characteristics of private-sector multinationals with access to government funding and strategic support.
That said, metals may push their way into the bilateral discussions, as they play a part in these larger issues. Here’s how:
Metals and piracy. Non-Chinese companies — see Ford and GE for instance — will state for the record they’re not about to hand over any IP as the price of admission to the Chinese manufacturing sector, but the pressure is there, and the list of U.S. companies that have lost IP to Chinese piracy is long and growing. No one wants to hemorrhage IP, but with access to scarce metals as a magnet, companies may feel they have little choice.
How vulnerable are we on the metals front? According to the USGS, which last month provided its annual snapshot of U.S. import-dependency on a range of 60+ metals and minerals, of the 19 metals for which the U.S. is 100% foreign-dependent, China is a Top 3 provider for 11. That’s up from 8 of 18 metals — in just one year.
The private sector versus the SOE. This uneven battle is the economic version of asymmetrical warfare: U.S. firms wage the battle for market-share on their own — with perhaps a bit of government-backed market advocacy — against Chinese mega-nationals that are locked into government planning and routinely benefit from government subsidy. In the metals sector, this plays out in China’s rapid emergence as a major resource development partner in Africa, as well as in grating one-offs like Afghanistan, where U.S. troops provided security patrols for key transport routes in Logar Province used by the Chinese to develop a massive $3.5 billion copper mine at Ainak.
On metals as on all else, the Chinese notoriously think long term — how long? Just take a look at 863 Program, now in its 26th year — while American politicians wrangle over two-week federal budget extensions and American captains of industry scramble for the next quarterly earnings call.
Thomas Friedman may fantasize about the U.S. being China for a day, but I’m sticking with America’s market-based, innovation-unleashing economic and political system. Even so, we could borrow from the Chinese a mentality that looks both longer-term and deeper at the foundational issues that affect our economic competitiveness, our technological progress and our national security. In each case, we’d see the need to base our policies on a sound rare metals strategy — one that puts a premium on developing domestic sources of metals and minerals that decrease our Chinese dependency.
