in-depth analysis of company reports and disclosures, mapping of deal flows, quantification of direct and indirect equity stakes, and other primary research, FP Analytics has produced the first consolidated review of this unprecedented concentration of market power.

This analysis reveals how rapidly and effectively China has executed its national ambitions, with far-reaching implications for the rest of the world.

No new phone can be made without minerals and metals buried in a surprisingly small number of countries. Reuters

China’s 13th Five-Year Plan declared 2016 to 2020 a “decisive battle period” for the nonferrous metal industry and for building a well-off society. Its hallmark initiative, “Made in China 2025”, aims to build strategic industries in national defence, science, and technology.

To meet these objectives, in October 2016, the Ministry of Industry and Information Technology announced an action plan for its metals industry to achieve world-power status.

By deploying state-owned enterprises and private firms to resource-rich hot spots around the globe, China would develop and secure other countries’ mineral reserves —including minerals in which China already holds a dominant position.

The timing could not have been better. The fall in metal commodities prices from 2011 to 2015 left many mining companies desperate for capital.

Even the largest global players, such as Anglo American, had to slash their workforces and shed assets. By directly acquiring mines, accumulating equity stakes in natural-resource companies, making long-term agreements to buy mines’ current or future production (known as “off-take agreements”), and investing in new projects under development, Chinese firms traded much-needed capital for outright control or influence over large shares of the global production of these resources.


Despite China’s slowing growth and a big pullback in its foreign direct investment in other sectors, the government has maintained robust financial support for resource acquisition; mergers and acquisitions in metals and chemicals hit a record high in 2018.

Though it boasts a rich endowment of natural resources at home, China lacks significant reserves of three resources vital to its tech ambitions: cobalt, platinum-group metals, and lithium.

It has successfully employed two strategies to secure control of them. One is driven by China’s state-owned enterprises (SOEs), which use development finance and infrastructure investment to embed themselves in higher-risk countries, establishing close ties with government leaders. The second is investment by state-linked private firms in market-based economies. Both strategies have shown agility and an ability to effectively adapt to local circumstances to achieve the same end.

Cobalt and the Democratic Republic of Congo

With few governments having articulated, let alone implemented, an explicit resource strategy, China is more than a decade ahead of the game.

At a gathering last June in Lubumbashi, the mining capital of the Democratic Republic of Congo (DRC), representatives from 35 Chinese mining companies announced the creation of the Union of Mining Companies with Chinese Capital to coordinate communication with the DRC’s government.

China has a massive stake in the Democratic Republic of Congo's mining industry. Bloomberg

China now owns or has influence over half of the DRC’s cobalt production, and has a massive stake in its mining industry.


China’s notably high tolerance for political and security risk and its ability to embed firms in the development of local industry have not only enabled Chinese SOEs to gain footholds in complex natural-resource markets, but given them a competitive edge over their rivals in the industry. Its patient acquisition of the DRC’s cobalt resources serves as a case in point.

The DRC is home to nearly two-thirds of the world’s cobalt production and half of its known reserves. Those resources are the prime target of investors for the booming battery industry.

Over a decade of steady engagement, China has staked out a dominant position by developing strong political ties and investing in production assets and related infrastructure. Using development financing, in 2007, the Export-Import Bank of China issued $US6 billion for infrastructure (a figure later reduced to $US3 billion) and $US3 billion for copper and cobalt mine development. Projects were run by Sinohydro and China Railway Group in exchange for a 68 per cent mineral stake in the Sicomines copper and cobalt mine, thought to be one of Africa’s largest. China deepened the DRC’s reliance on Chinese capital by committing to finance the revitalisation of the DRC’s state-run company Gécamines, strengthen the country’s core industrial sector, and create needed jobs through additional sector investments.

By targeting debt-stressed mining companies already established in the DRC, China’s SOEs and private firms have secured equity shares and influence over a majority of its mines, including majority stakes in the Tenke Fungurume mine, which holds one of the world’s largest, highest-grade deposits of copper and cobalt. China Molybdenum bought the majority stake (56 per cent) from US company Freeport-MacMoRan in 2016, and recently bought an additional 24 per cent stake from Chinese private-equity firm BHR Partners. Over time, China has secured ownership over 10 out of the DRC’s 18 major operational mines, six major development projects, and a three-year off-take deal from the DRC’s (and the world’s) largest cobalt mine, in effect establishing influence over 52 per cent of the country’s production.

China’s SOE-driven strategy remains dominant throughout Africa, where adverse market sentiment and financial hardship in the mining industry have opened the door for SOE investment across the region. Notably, SOEs, in partnership with the China-Africa Development Fund, a Chinese state-funded institution, have expanded in South Africa’s Bushveld Complex, a mineral-rich geological formation that contains the world’s largest reserves of platinum-group metals — critical for making catalytic converters, which are essential for reducing automobile emissions — and the world’s highest-grade and third-largest deposit of vanadium, a resource integral to a broad range of high-tech industries, from renewable-energy storage to aerospace and defence.

The extension of state strategy abroad

China is also proving agile at adapting to conditions in market-oriented, democratic countries, using privately owned companies that are backed by state capital.

Processed tantalum at Talison's Greenbushes mine in Western Australia.


By incrementally acquiring equity stakes in big local resource companies and financing junior developers, Chinese firms are strengthening their market presence while overcoming local concerns about foreign control over strategic domestic resources, such as niobium in Brazil and tantalum in Australia.

Nowhere is this privately driven resource strategy more evident than in the three countries where nearly 90 per cent of global lithium production and more than three-quarters of the world’s known lithium reserves are located: Chile, Argentina, and Australia.

In just six years, China has come to dominate the global market: More than 59 per cent of the world’s lithium resources are now under its control or influence.

With the backing of state-owned banks, China’s industrial chemical giants — Tianqi Lithium and Ganfeng Lithium — have become the world’s third-largest producer of lithium and third-largest producer of lithium chemical compounds, respectively. The chairmen of both companies have risen within the ranks of Chinese politics over the past few years, just as China was beginning to prioritise securing supplies of rare metals.

Growing equity in Latin America’s lithium leaders

In early 2018, Tianqi Lithium made a bold play to acquire a 24 per cent stake in Chilean rival Sociedad Química y Minera (SQM), the world’s second-largest lithium producer. Chile is home to 57 per cent of the world’s known lithium reserves, the world’s largest known concentration, and SQM controls roughly half the country’s production.

In the industry’s biggest mergers-and-acquisitions deal so far, Tianqi made a $US4.1-billion bid on SQM’s shares, $US3.5 billion of which was financed by China’s CITIC Bank International, whose parent company, CITIC Group, is among China’s largest state-owned financial and industrial conglomerates.

The Chilean government has traditionally held a relatively tight rein on its lithium resources, which have long been considered strategic for the nation’s nuclear industry. The size of the deal with Tianqi heightened concerns in Chile over a foreign entity controlling those resources, and the potential for a cartel to form — spurring public opposition and antitrust and constitutional court challenges by SQM’s majority shareholder. After months of legal battles and debate, the Constitutional Court of Chile dismissed the antitrust claims, allowing Tianqi to secure the deal in December.


Tianqi Lithium Corporation chairman Jiang Weiping in Perth in 2017 . TREVOR COLLENS

Moving into Australia

In a cash-strapped industry, Chinese firms are financing mine expansion and new development in exchange for a guaranteed supply of lithium in both mature and emerging markets. In Argentina, where President Mauricio Macri is eliminating mineral export taxes, reducing corporate tax rates, and allowing profit repatriation, China is establishing a dominant position in the nascent sector with “streaming deals”, which provide development capital in exchange for future lithium yields to help projects get off the ground. Chinese firms, led by Ganfeng, have stakes in 41 per cent of the country’s big planned projects that account for 37 per cent of Argentina’s reserves. This raw-material strategy is already coming to fruition: Lithium export volumes from Argentina to China rose nearly fourfold from 2015 to 2017, and China has secured access to the country's lithium for the longer term.

This same strategy, combined with asset acquisition, has also been successful in Australia, whose proximity to China, significant lithium reserves, and broad political support for mining investment have attracted Chinese investment. Tianqi and Ganfeng have established stakes in 91 per cent of the lithium mining projects under way and 75 per cent of the country’s reserves, including some of the world’s largest. By taking over Talison Lithium, Tianqi captured a majority stake in the Greenbushes mine, which accounts for roughly 40 per cent of global lithium production. Together, Chinese firms have secured deals with nine of the 11 major operations and projects in the pipeline in Australia, two-thirds of which are exclusive.

Growing the global footprint

Having already consolidated control over global lithium supplies, Tianqi and Ganfeng are just getting started. Both filed for initial public offerings last fall with the intent to raise capital for further expansion. Ganfeng raised $US421 million in its October 2018 initial public offering, which included four state-linked cornerstone investors. Last November, Tianqi received the necessary approvals from the China Securities Regulatory Commission to prepare for its Hong Kong listing, the proceeds from which will be deployed in global markets.

China reinforces its resource dominance

China is also making moves to take an even stronger position in resources it already controls on the global market. Natural resources are abundant in China; it is the No. 1 producer and processor of at least 10 critical minerals and metals that are essential to high-tech industries and upon which China’s commercial and strategic competitors depend. To reinforce its strength, Chinese firms are acquiring mines and output from the next-largest producers and reserves, giving China both an economic edge in the next high-tech industrial revolution and increasing geopolitical power.


Perhaps the best-known example both of China’s natural-resource dominance and its willingness to exploit it is rare-earth elements, a group of 17 elements that (despite their name) are commonly found, but rarely in concentrations that can be economically extracted. They are important materials for the defence, aerospace, electronics, and renewable energy industries. Over the past two decades China has produced more than 80 per cent of the world’s production of rare-earth elements and processed chemicals. In 2010 it cut off exports to Japan amid rising tensions over the East China Sea, and the following year it imposed export quotas that threw governments and manufacturers into a panic. But with the exception of Japan, the attention to this critical vulnerability was short-lived, and little action was taken by other countries reliant on imports to diversify their resources or develop minerals action plans of their own.

China declared rare-earth elements a strategic resource in 1990 and prohibited foreign investment in the sector. Six state-owned enterprises control the industry, and the government cut production quotas in 2018 by 36 per cent. With global demand for rare-earth elements projected at a compound average growth rate of more than 17 per cent to 2025, a supply crunch is likely approaching — and China is already securing other nations’ supplies.

Chinese firms have been increasing stakes in mines and securing off-take deals from the world’s largest deposits of rare-earth elements. While Russia strictly limits foreign participation in rare-earth element development, Chinese firms have accumulated off-take agreements and stakes in rare-earth element mines in Australia and Brazil.

Though Australia’s Foreign Investment Review Board denied a 2009 takeover of Australian company Lynas’ mine at Mount Weld, the second-largest rare-earth element oxide producer outside China, Chinese firms have locked in output from the site. Northern Minerals, owned by Chinese firms, is also developing Australia’s other big rare-earth elements site, Browns Range; 100 per cent of the mine’s dysprosium, an element used in magnets and superalloys, will go to China’s Lianyungang Zeyu New Materials Sales Company.

And in the United States in 2017, China’s Shenghe Resources and two US private equity firms acquired the sole US and North American rare-earth element producer and processor, Molycorp, and its idled mining operations at Mountain Pass, California. The operation went bankrupt in 2015 due in large part to low prices for Chinese supplies of rare-earth elements, and its sale briefly spurred debate over whether the deal posed risks to national security, but opponents could not make the legal case to block it. Shenghe holds rights to the mine’s output; meanwhile the United States’ rare-earth element imports continue to increase, at a cost of $US160 million in 2018 alone.

Though President Donald Trump has since called for a defence review and assessment of critical minerals, the Committee on Foreign Investment in the United States has not taken further action on the site. Meanwhile, Shenghe and its subsidiaries are continuing to expand internationally, with a big joint-venture development project in rare-earth elements now under way in Greenland. China’s decades-long consolidation of strategic resources has only compounded its commercial and geopolitical capabilities, and it shows no sign of slowing down.

Vanadium and graphite


The site of the Australian Australian Vanadium Project. Supplied

China is also seeking to expand its dominant market position in vanadium and graphite, securing additional supplies and building integrated supply chains. Vanadium is a transition metal that is used in flow batteries, superconducting magnets, and high-strength alloys for jet engines and high-speed aircraft. Chinese firms already produce 56 per cent of the world’s vanadium domestically, and China is home to 48 per cent of the world’s reserves. Now, they are targeting South Africa, ranked third in vanadium production and reserves behind China and Russia.

In 2015, Hong Kong-based International Resources , a company whose ownership is opaque, executed a takeover of a big vanadium mine from Russia’s Evraz Highveld Steel and Vanadium, which was facing bankruptcy. In 2016, China’s Yellow Dragon Holdings co-invested with Bushveld Minerals, the primary vanadium developer in South Africa’s massive Bushveld Complex, to acquire Strategic Minerals, which owned the Vametco vanadium mine and plant. Yellow Dragon subsequently increased its investment in Bushveld Minerals and has become the fifth-largest shareholder.

The holdings deepen China’s influence over South Africa’s vanadium resources and its role in the country’s emerging high-tech sector. Bushveld Minerals is moving to develop an integrated platform to produce vanadium redox flow batteries for distributed energy across South Africa. The vanadium resources will also flow toward China, feeding its battery industry and the National Development and Reform Commission’s planned rollout of 100-megawatt stationary energy storage stations to manage its wind and solar energy.

China’s position is even stronger in graphite, a crystalline form of the element carbon whose high conductivity makes it a big component in electrodes, batteries, and solar panels, as well as industrial products such as steel and composites. For the past 20 years, China has been the leading global supplier of graphite, representing nearly 70 per cent of the world’s production in 2018 and 24 per cent of its reserves. While synthetic graphite, which is produced from petroleum coke, is an alternative, unfavorable economics constrain its use.

Rapidly growing demand for batteries and other end uses, coupled with environmental restrictions in China, are driving prices higher and stimulating investment. New projects are concentrated in Mozambique, where the world’s largest graphite mine and fourth-largest known reserves are located. Already, Chinese firms have secured off-take agreements with the three big developers in Mozambique for the majority of their graphite production, and they are financing new development.

Now that it controls most of the world’s graphite, China has expanded down the supply chain, becoming the world’s leading producer of anodes, positively charged electrodes that are essential for making lithium-ion batteries. That industry is also highly concentrated: China’s Shenzhen BTR New Energy Materials accounts for roughly 70 per cent of global anode production. The next-largest player is Japan’s Hitachi Chemical, at 20 per cent; Japan is 90 per cent reliant on China for its graphite. China is channelling increasing volumes of graphite toward its booming domestic battery and new electric-vehicle industries, stockpiling domestic production and reducing graphite exports, which could result in a supply crunch for other end users. In 2016, China consumed 35 per cent of the world’s graphite production.

Controlling the fuel of the future


This resource consolidation could determine whether China is able to overcome the last big hurdle to achieving its ambitions: a competitive semiconductor industry. The lifeblood of high-tech industries, semiconductors are made of the very minerals and metals over which China is securing control. Semiconductors can be pure elements or compounds and altered with impurities to improve their conductivity. Several materials are now being used to improve speed and performance, including rare-earth elements, graphite, indium, gallium, tantalum, and cadmium. China is the dominant producer of five out of the six, controls more than 75 per cent of the world’s supply of three, and is consolidating control over them all.

However, China still lacks the technological capability to produce semiconductors on par with the industry’s leading companies and remains highly dependent on imports, at a cost of roughly $US260 billion ($375 billion) a year. The government is keenly focused on ending its dependency by acquiring the technological expertise to surpass its rivals. It poured nearly $US20 billion into highly targeted research and development to that end from 2014 to 2017, and it is only intensifying its focus.

Should China succeed technologically, its capacity to scale production and flood markets (as it has already done with solar panels and wind turbines) has serious implications not only for leading semiconductor producers, but also for national security, if Chinese-manufactured chips are embedded in the devices upon which our data-driven lives, our economies, and our defence systems increasingly depend. While government and industry officials have started to restrict semiconductor sales and scrutinise Chinese acquisition of technology firms — such as the United States’ temporary ban on selling semiconductors to ZTE, or the recent flare-up over Huawei —such moves are strengthening China’s resolve to develop its domestic industry. More attention should be paid to its efforts to consolidate critical raw materials and the computing power they confer.

This is not a foregone conclusion. It will, however, require us to fundamentally rethink how we understand strategic industries and the long-term investments needed to ensure economic prosperity and national security in the digital age. Some countries are waking up to these strategic vulnerabilities and starting to act on them. In April, US government officials announced plans to meet with lithium industry leaders and car makers with the intention of developing a national electric-vehicle supply chain strategy. It is a start.

Foreign Policy

Foreign Policy