Journal of Political Risk, Vol. 7, No. 10, October 2019

By Michael K. Cohen

Rare earth – the colorful metals derived from 17 extraordinarily hard-to-mine chemical elements – are a little-known part of all of our lives. They are crucial elements of mobile phones, flat screen televisions and more than 200 other consumer electronic devices that we use every day.

But these exotic elements are needed for more than just phones and televisions. Their lightweight properties, and unique magnetic attributes, are indispensable to military assets that use sonar, radar or guidance systems, lasers, electronic displays, and myriad other mechanisms.

The vast majority of rare earths that countries need to protect themselves are produced by one country: The People’s Republic of China. And it does not appear that the situation will change in the near future. China has in recent years worked to monopolize the production of these elements as a strategic resource.

China has made rare earths available to countries around the world that need them, but that could abruptly change. Chinese state-controlled media has warned that sales of rare earths to the United States could be restricted as part of a new front in the ongoing trade war.

“Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all?” asked the Chinese periodical People’s Daily. “The answer is no mystery.”[1]

If history is any judge, other countries could face similar restrictions. In 2010, China banned the export of rare earths to Japan in response to a diplomatic dispute over contested islands that both countries claim. The ban was later lifted.

What can be done to create alternatives to sourcing rare earths from China? The governments of Japan, the United States and Australia are all looking at alternative production facilities outside of China. But these will take many years to develop and would not cushion the blow of a sudden embargo by China in the near term. Michael Silver of the Wall Street Journal put it bluntly: “Control of the rare-earth supply gives Beijing both economic and military advantages over the U.S.”[2]

The only other alternative is the Malaysia-based production facility of Australian company Lynas, which is the world’s “only major producer of rare earth minerals outside of China.”[3] The company mines rare earth elements (REEs) in Western Australia and processes them in a facility near the city of Kuantan, on the east coast of peninsular Malaysia.

By some estimates the facility could meet about a third of global demand for REEs if its processing plant were to be expanded.[4] Currently, the company produces about 20 percent of the world’s supply of Neodymium (Nd) and Praseodymium (Pr).[5] These little-known elements are critical components of modern industry, manufacturing and defense – used in everything from high-powered magnets, hard disks, and aircraft engines, to electric vehicles.

Unfortunately, the conversations these days surrounding the Lynas facility in Malaysia are not about expansion; they are often about closing the facility down. The production of rare earths produces exceedingly low-level radioactive material, and environmental activists and some local politicians claim this creates a health hazard, despite evidence to the contrary from multiple government reviews of the facility, two visits by the International Atomic Energy Agency and four challenges in court.

In August, the Malaysian government took the unusual step of granting Lynas a six-month extension in their license to operate when a three-year extension is the norm. The company was told to develop plans for a permanent disposal facility in order to contain the waste material. Lynas has proposed options to safely dispose of the material, but the debate continues.

Threats to shutter the facility are coming at an unusual time. The Malaysian government, after years of corruption scandals under the previous administration, has signaled that this is a new era under Prime Minister Mahathir Mohamad. Malaysia is open for business and eager for foreign investment. Implicit is that the new Malaysian government will abide by the rule of law.

It remains to be seen if this pro-investment policy includes maintaining the $800 million Lynas facility, which employs hundreds of people in a relatively remote area of Malaysia with higher poverty and unemployment rates than the country’s commercial centers.

“It has created 700 jobs, high quality paying jobs,” Mahathir told reporters recently. “If you treat Lynas like a pariah, and ask them to leave this country, we will not get other people to come to this country to invest.”[6]

If operations at the facility are abruptly halted, they cannot easily and quickly be re-started. Few companies in the world have the experience and expertise needed to operate a high-volume rare earth facility such as the Lynas plant. The most likely candidates would be found in China, which has a strong national interest in either closing down or taking over the facility. It is a scenario that PM Mahathir is acutely aware of, last month stating that a Lynas shutdown would render Malaysia “unable to break the Chinese monopoly as the sole exporter of rare earths.”[7]

Earlier this year it was announced that Lynas had agreed to partner with Texas-based Blue Line Corporation to build a processing facility in that state. According to Lynas, the new facility would fill a “critical” supply chain for U.S manufacturers.[8] However, getting such a facility up to an operational level will take some time – for construction, as well as altering supply chains and physically moving the raw materials involved. “It would take about a year of construction and then this next year to start up. So we’re talking two to three years to get into production,” said Blue Line CEO Jon Blumenthal.[9] If Lynas’ Malaysia plant were to shutter after the expiry of its current six-month operational license, that critical supply chain gap would remain open, and China would have one, perhaps two full years to exploit the situation.

Among the communities in Malaysia that will be hard hit by the closing of the plant, there are more than a few people concerned that China might already be taking an unwelcome role in the debate by influencing the local politicians driving the opposition to the plant. People working at and living around the facility are not getting sick, and the plant keeps passing safety tests. So, the environmental danger argument fails to resonate, particularly when juxtaposed against real economic benefits.

So what has sustained the ‘Stop Lynas’ campaign despite the lack of clear environmental justification? Politics seems to be the obvious answer, and the influence of Chinese interests over Malaysian politicians certainly cannot be ruled out. China has proved adept at co-opting local politics to suit its geopolitical ambitions. “One of the most potent tools for Beijing [has been] to cultivate close ties with political elites,” said AidData, a U.S.-based watchdog that monitors development funding.[10]

Last year, Xu Yousheng, deputy director of the PRC’s United Front Work Department coyly stated that overseas ethnic Chinese “should strive to become active promoters of mutual political trust and mutually beneficial relations between China and neighboring countries.”[11] It is perhaps more than coincidental then that many ‘Stop Lynas’ politicians are members of the ethnic Chinese-dominated Democratic Action Party (DAP).

First among these politicians is Minster of Environment Yeo Bee Yin, who has been calling for Lynas’ closure for years, despite all evidence being against Lynas causing environmental problems. Yeo’s billionaire husband, Lee Yeow Seng, is from one of Malaysia’s wealthiest families and runs IOI Property Group, part of a conglomerate with deep ties in China. Recently, Minister Yin has rebuffed calls for her to resign over conflict of interest issues related to the ongoing forest fire crisis in Indonesia. IOI has significant palm oil interests in that nation and is said to be among the companies behind the haze that is now affecting much of the region.[12]

Activist groups have likewise shown themselves to be vulnerable to Chinese influence and funding. In 2017, the Wall Street Journal’s Greg Rushford narrated how multiple environmental organizations “are betraying their ideals in the pursuit of money and access in China,” citing the unwillingness of multiple groups, most notably Greenpeace, to take a stand on China’s environmental destruction in the South China Sea, through its dredging-based artificial island building program.[13] Nor has Greenpeace come out against China’s massive overfishing of the South China Sea.

By contrast, since 2014 Greenpeace has taken a leading and extremely active role in the ‘Stop Lynas’ campaign. In April 2019, the group (in their own words) “mobilised alongside over 60 NGOs and community groups…[appealing] to the Malaysian government to fulfil their promises by suspending Lynas’ operating license.” [14] The demonstration was accompanied by a joint statement of the participant NGOs. That Greenpeace’s signature appears 2nd, on the signatory page (which is not in alphabetical order), behind only that of the ‘Save Malaysia Stop Lynas’ group, is not coincidental, and speaks to Greenpeace’s prominent role in the campaign.[15] The inclusion of Chinese text in their campaign materials points conspicuously to the implicit presence of Chinese influence in these activities. Greenpeace did not immediately respond to a request for comment.

In the local area, people are fighting to keep their jobs, but the issue has broad regional and international implications as well. China’s state control over its economy means that its economic success is inseparable from Chinese national security. And Chinese national security is arguably assisted through some instability in Southeast Asia, considering China’s divide and rule policies in the region.

If the last major non-Chinese source of rare earths is throttled, there will be many losers: local workers, Malaysia’s reputation as a stable location for foreign investment, the strategic interest of countries that need these minerals to keep their nations safe, and many others. There will be only one winner: China.

Michael K. Cohen is a journalist with more than 30 years experience in the field, spent mostly in Asia. He has worked with ABS-CBN Philippines, Fox News, Sky News, IHS Jane’s, and extensively as a freelancer. Raised in Palawan, Michael has extensively covered mining and environmental issues and was one of the first journalists to report on China’s island occupation and building activities in the South China Sea. He currently resides in New York City.

[1] https://www.dw.com/en/can-china-stop-rare-earths-exports-to-the-us/a-49068325

[2] https://www.wsj.com/articles/chinas-dangerous-monopoly-on-metals-11555269517

[3] https://www.reuters.com/article/us-lynas-corp-jv-us/australias-lynas-plans-new-processing-facility-in-the-u-s-idUSKCN1SP0SX

[4] https://nationalinterest.org/blog/buzz/how-one-rare-earth-processing-plant-malaysia-could-change-us-china-trade-war-75931

[5] https://www.ajot.com/premium/ajot-lynas-corporation-ships-rare-earth-oxides-worldwide

[6] https://www.straitstimes.com/asia/se-asia/malaysia-cant-cast-out-rare-earth-producer-lynas-as-it-creates-jobs-says-mahathir

[7] https://www.reuters.com/article/us-lynas-corp-malaysia/malaysia-defends-move-to-extend-licence-for-rare-earth-firm-lynas-idUSKCN1VP1K6

[8] https://www.reuters.com/article/us-lynas-corp-jv-us/australias-lynas-plans-new-processing-facility-in-the-u-s-idUSKCN1SP0SX

[9] https://www.foxbusiness.com/industrials/first-rare-earth-processing-facility-outside-of-china-to-be-built-in-texas

[10] https://www.scmp.com/news/china/diplomacy-defence/article/2152639/china-undermining-its-neighbours-trust-buying-political

[11] https://www.scmp.com/news/china/diplomacy-defence/article/2161062/overseas-chinese-have-role-play-building-political

[12] https://www.straitstimes.com/asia/se-asia/malaysian-minister-yeo-bee-yin-ignores-calls-to-resign-for-conflict-of-interest-over

[13] https://www.wsj.com/articles/how-china-tamed-the-green-watchdogs

[14] https://www.greenpeace.org/malaysia/story/1243/looking-back-at-our-first-campaign-in-malaysia-stopping-lynas-radioactive-threat/

[15] http://sahabatrakyatmy.blogspot.com/2019/04/join-statement-by-61-ngos-protect.html?m=1