Sunday 31 August 2014

Modi, Abe bid to break China monopoly in rare earths (Sunday Guardian)

MADHAV NALAPAT  New Delhi | 30th Aug 2014
Narendra Modi (L); Shinzo Abe
he formal and informal meetings scheduled to take place between Prime Minister Shinzo Abe of Japan and visiting Prime Minister Narendra Modi of India have (inter alia) the ambitious aim of breaking Beijing's near-monopoly over the commercial production of the 17 "rare earths". At present, nearly 97% of commercial production of rare earths is located in China or controlled by Chinese companies, including in North Korea, where exploration is ongoing. This, despite China having only a third of global rare earths deposits. Rare earths are core to the production of a wide range of high-technology products, and from the 1970s, the relative position of India (once the world's largest producer of rare earths) has slipped substantially relative to China. In large part, this is because policymakers in New Delhi have neglected the need to give a boost to domestic production, preferring the easier option of importing such minerals, mostly from China. Because of tensions between Tokyo and Beijing, fresh restrictions are being placed on supply of Chinese rare earths to Japanese high-technology enterprises, thereby forcing Tokyo to look to the other Asian giant, India, for its requirements. The first such collaboration is between the Indian Rare Earth Limited (IREL) and Toyota to supply complex raw material to the former's unit in Vizag, Andhra Pradesh.
Because of its near-monopoly over the commercial production of rare earths, China is in a position to deny countries access to rare earths, thereby severely affecting the production of high-technology items. Since Hu Jintao took over as President more than a decade back, China has adopted a dual policy of, (a) seeking to itself make high-tech items rather than simply provide the raw materials for other countries to do so; and (b) capture rare earths deposits, especially in Africa, through commercial deals in countries such as South Africa and Malawi.
Interestingly, Afghanistan is estimated to have huge deposits of rare earths, and Beijing is planning an investment of several tens of billions of dollars in that country. It has hedged its bets by having good relations with both the Pakistan ISI (which mentors the more important offshoots of the Taliban), as well as with the Kabul-based government that is fighting the Taliban. By themselves, neither India nor Japan can hope to match China, but together, the calculation is that in five years, the two countries can free themselves of dependence on Beijing for raw materials for their high-technology industries.
Interestingly, rather than assisting India (and itself) to break free of dependence on China for the supply of rare earths, successive US administrations (including Obama) have sought to slow down and stop Indian production, including through severe sanctions on IREL and such entities. Pressure from Washington is believed to be a key reason why Prime Ministers in India from the 1990s have neglected the rare earths industry, thereby reducing it to relative insignificance. Shockingly, raw materials of great value, such as thorium, have been allowed to be unprotected and subject to smuggling, mostly through ports through which a bribe usually permits almost anything to be taken in or out.
Prime Minister Abe is conscious of the importance of India to the security of Japan, which is why it is expected that a nuclear collaboration agreement will get signed between the two sides. The absence of this and other deliverables was what triggered the postponement by two months of Prime Minister Modi's first visit to Japan. In the meantime, both sides have been at work on a roadmap for transformative ties, that will emphasise not only collaboration in manufacturing but also in defence, education, agricultural processing and culture. A nuclear agreement would open the door for Japanese companies to not only supply power plants to India but would open the door for joint research and development in "safe" technologies based on thorium, a radioactive substance that India has in abundance.
Both India and Japan are keeping watch over the rapid development of high-technology industries in China. Although Beijing has yet to come close to (leave alone match) the US in key sectors such as chip-making, through a process of acquisition of both companies as well as technology, China is close to taking over from Japan the distinction of being Asia's technology leader. A fusion of Indian software and Japanese hardware skills is expected to reverse such a trend, and such issues will be prominent in the discussions between Prime Minister Modi and his Japanese counterpart. Aware of such moves, China is edging closer towards Russia, and is close to finalising exploration deals with that country designed to boost its control over rare earths. Its monopoly over elements essential in the production of more than 700 high-technology items has given China an immense geopolitical advantage, one that Modi and Abe will be looking to reduce as a consequence of a high-technology partnership between India and Japan, crucial to which will be joint self-sufficiency in "rare earths".

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