The True Drivers Behind China’s Accelerated Development of Natural Resources
A few weeks ago, in the second of my articles on “The Rare Earth Crisis of 2009“, I commented on the fact that the Chinese put as great an emphasis on full employment as the West does on making a profit. This emphasis has to be borne in mind when considering the Chinese perspective on the environmental impact of their operations.
In his latest article over at RareMetalBlog, Gareth Hatch comments on a report in the latest edition of UK’s Sunday Times by Lindsey Hilsum, on the extensive pollution associated with the production of rare earth elements in Baotou, Inner Mongolia. Apparently “locals tell the tale of a ‘viscous, red liquid’ that oozes from a lake near to the city, a lake as it happens that contains the tailings of rare earth mining production. Water from the lake seeps into the surrounding farmland, rendering the fields barren and the water supply undrinkable.”
Lindsey Hilsum goes on to report that in Jiangxi, one of China’s other main rare earth production areas, polluting rare earth extraction plants that were once shut down by the authorities, now illegally “operate at night, under armed guard, with the collusion of local Communist party leaders who help mafia bosses keep the lucrative trade going.”
Gareth says that:
The irony that all of this pollution and contamination is occurring in the name of the production of the so-called “green elements” should, I hope, not go unnoticed.
While there are certainly signs that China is genuinely trying to clean up its industrial and environmental act, reports like these are a sobering but timely reminder of the very real, hidden price that is being paid, day in, day out, for producing the low-cost goods to which the West is addicted. By continuing to rely on the Chinese for these materials, produced in this way, we enable this behavior, and indirectly facilitate the continued demise of Western, and in particular North American manufacturing and production.
That this pollution and befouling of the environment is still occurring in the supply chain of rare earths to the West, despite the vast potential reserves in Canada and elsewhere in North America, makes this act of enablement an even more bitter pill to swallow. Where are the “über-capitalists” in North America? Why are they not falling over themselves to line up to help the junior miners and exploration companies fully realize their ore deposits – in an environmentally sensitive and responsible manner of which we are capable? Why is it such a challenge for these guys to raise the cash they need to make these projects a success?
I’ll make another point here… according to the China Environment Forum, there were over 5,000 environmental protests in China last year, and the numbers are growing. This increased social and political unrest over pollution and the deteriorating health of the population has the authorities concerned. Despite the apparent blind eye to illegal activity described earlier, it is conceivable that a massive, nationwide crackdown on environmentally unsound mining and processing plants could occur in the near future, in a bid to quell unrest.
This would ultimately benefit the heath and well-being of Chinese villages and city dwellers – but such a move could abruptly shock the already precarious supply chain of rare earths, from China to the West. This would cause a reduction in supply, and a rapid increase in cost – long before future deposits come on line in Canada and elsewhere, at present rates at least, and in sufficient quantities to be able to compensate.
If the West won’t increase the rate of investment in its own resources as a means of confronting the ethical dilemma that current production practices in China present – surely this latter scenario, at least, is enough for us to get our collective acts together?
These points are well taken, but I wonder if our institutional investors really understand the key driver for China’s rush to “develop” its natural resources.
Western investors see greed / profit as the main driver for any production of natural resources anywhere. I think that the Chinese government, which we must remember is the owner of, and licensor of any production of, all natural resources in China, is determined to catch up with Western technological progress by whatever means necessary – not to make profits, but rather to level the cultural playing field.
Chinese “entrepreneurs” are not risking their lives and engangering the lives of their fellow countrymen primarily to produce natural resources for export; they are driven by greed, surely enough, but their greed is satisfied by the managers of Chinese state enterprises who cannot get sufficient raw materials to meet their quotas under the current five-year plan.
These managers will pay more than the “contract” price for supplies, because in China, failure to meet your goal is the same as failure to do your job. Simply to say that you could not get sufficient supply is merely making excuses, because the same five-year plan that you are not fulfilling, says that the natural resource producers will produce enough material to fulfill their part of the plan, and their suppliers of equipment will also produce enough. Those failing to meet their quotas are clearly failing the people… I think we all understand how this type of pressure can lead to environmentally unsound decisions and even to official mines looking away from unscheduled and unsafe production.
The idea that we in the West can compete with this type of thinking by simply looking at such metrics as “return on investment” is at best naive.
I have said before and I will continue to say that the so-called prices set for rare earth metals by Chinese producers, at all levels, are arbitrary.
When the crunch point comes, and it may come very soon, when there are no rare earth metals to be had for export, the prices of the rare earth metals will skyrocket and institutional investors will squander billions to re-start the Western supply and value chains for the rare earth metals. Western institutional investors simply don’t know how to value rare metal resources; they are about to have an expensive lesson.
Let me repeat: I believe that the rare earth metals are underpriced already at the present time, because they represent a Chinese pricing set for the main purpose of keeping production of rare earth metals – and their end use products – in China, to maximize the jobs created by this industry, within the domestic Chinese economy.
This situation cannot last much longer, because I believe that China itself is running short of rare earth metals due to inefficient production methods, environmental problems, and corruption.