Microelectronics and Rare Earth Elements Sectors

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Liang Mengsong brought a team of engineers from Samsung including Taiwan and South Korea to join SMIC [31] [32] [33] . He also recruited Zhou Meisheng, his former subordinate at TSMC, for SMIC [34] ; Zhou’s advanced technology research and development in the industry, It has qualifications for cooperation, transfer and other projects [35] , specializes in related technologies and holds more than 130 international patents. [35] On the recommendation of Liang Mengsong, Zhou Meisheng was appointed as the chief technology officer [34] , and Liang Mengsong recruited more than 200 core members for SMIC, most of whom came from Hsinchu Science Park in Taiwan [24] . Due to the non-compete clause, the team led by Liang Mengsong could not immediately invest in the research and development of SMIC's new generation products, so they participated in the improvement of previous generation products to improve the yield rate of the 28nm process [24] [4] [ 8 ]


 

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Wait for @Nilgiri until he comes and say how it is all propaganda and there is no way PRC could pull this off etc, etc.🤣🤣


Edit- this was a joke, I would also like to hear other esteemed members opinion on this. @Merzifonlu

On the subject, I get lot of my information on the details and challenges regarding all the countries involved from this channel (Asianometry) for some years now:


He does a pretty objective job (and does some interesting analysis on other topics too from time to time).

There is no need to take an extreme doom or triumphalist position on the matter, simply a long enough study of the facts.

The problem for PRC IMO is much larger one than relative side show of where they have intensely invested in last 10 - 20 years and will have some breakthroughs for some time by sheer inertia there.

Their apex is frozen now by:

1) a severe demographic crunch starting and really entrenching now
2) atrophying of their bureaucratic system since Zhao Ziyang got purged
3) The corrupt patronage model with "easy real estate + NBFC" for GDP objective that (2) pushed
4) The debt this has created this early (especially at local govt), that no longer can be laundered away by the state NBFCs
5) CCP inserting itself with coercive commisars on top of (2) in all kind of IP intensive ecosystems

I saw (5) in action in the Pratt facility I visited in Chengdu. There simply is not and will not be lateral flow and feedback with the level of regulations they have for their smarter folks involved in trying to take things further than what the JV has provided especially in process flows to grow more suppliers and innovators around the hub.

i.e The most mundane of things needs CCP molasses process involved to satisfy some CCP bureaucrat. Its unthinkable in same kind of factory operation in west for these high IP sectors.

The unique marxist nervous system of PRC is a big legacy and overhang problem that will come to bear increasingly as China's raw size (and raw market availability worldwide to expand into like before) is no longer able to push past that problem.
 

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On the subject, I get lot of my information on the details and challenges regarding all the countries involved from this channel (Asianometry) for some years now:


He does a pretty objective job (and does some interesting analysis on other topics too from time to time).

There is no need to take an extreme doom or triumphalist position on the matter, simply a long enough study of the facts.

The problem for PRC IMO is much larger one than relative side show of where they have intensely invested in last 10 - 20 years and will have some breakthroughs for some time by sheer inertia there.

Their apex is frozen now by:

1) a severe demographic crunch starting and really entrenching now
2) atrophying of their bureaucratic system since Zhao Ziyang got purged
3) The corrupt patronage model with "easy real estate + NBFC" for GDP objective that (2) pushed
4) The debt this has created this early (especially at local govt), that no longer can be laundered away by the state NBFCs
5) CCP inserting itself with coercive commisars on top of (2) in all kind of IP intensive ecosystems

I saw 4 in action in the Pratt facility I visited in Chengdu. There simply is not and will not be lateral flow and feedback with the level of regulations they have for their smarter folks involved in trying to take things further than what the JV has provided especially in process flows to grow more suppliers and innovators around the hub.

i.e The most mundane of things needs CCP molasses process involved to satisfy some CCP bureaucrat. Its unthinkable in same kind of factory operation in west for these high IP sectors.

The unique marxist nervous system of PRC is a big legacy and overhang problem that will come to bear increasingly as China's raw size is no longer able to push past that problem.
İn this chip case

Because of the same culture and and language.PRC hired a whole Taiwanese tech team from TSMC.

I wonder that why so many guys here talk like PRC done it by themselves.
 

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İn this chip case

Because of the same culture and and language.PRC hired a whole Taiwanese tech team from TSMC.

I wonder that why so many guys here talk like PRC done it by themselves.

Quite a few of the older asianometry videos goes into the reasons why and so on. Down to specific people and teams iirc.
 

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F6pSMK7WEAAqzji.jpg


 

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U.S. to tighten control over the supply of chips for artificial intelligence to China


By the end of the week, the United States plans to tighten measures aimed at limiting China's access to advanced microchips and equipment for their production. This is Washington's way of trying to stop its geopolitical rival from obtaining advanced technologies that can be used for military purposes. According to Bloomberg sources, the amendments are aimed at clarifying and closing vulnerabilities in the already existing restrictions. The U.S. presidential administration is particularly focused on restricting exports of graphics chips that can be used in artificial intelligence (AI) technologies, as well as equipment for their production. The U.S. will also impose additional inspections on Chinese companies that try to circumvent export restrictions by shipping through third countries. Chinese microprocessor manufacturers will be placed on the restricted list. Foreign manufacturers will be required to obtain a U.S. license to fulfill orders from such companies.
 

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U.S. to tighten control over the supply of chips for artificial intelligence to China


By the end of the week, the United States plans to tighten measures aimed at limiting China's access to advanced microchips and equipment for their production. This is Washington's way of trying to stop its geopolitical rival from obtaining advanced technologies that can be used for military purposes. According to Bloomberg sources, the amendments are aimed at clarifying and closing vulnerabilities in the already existing restrictions. The U.S. presidential administration is particularly focused on restricting exports of graphics chips that can be used in artificial intelligence (AI) technologies, as well as equipment for their production. The U.S. will also impose additional inspections on Chinese companies that try to circumvent export restrictions by shipping through third countries. Chinese microprocessor manufacturers will be placed on the restricted list. Foreign manufacturers will be required to obtain a U.S. license to fulfill orders from such companies.
Full link to the new sanctions.



Attention to those who are interested

@Nilgiri @Merzifonlu @Zafer @TheInsider @OPTIMUS
 

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U.S. to tighten control over the supply of chips for artificial intelligence to China


By the end of the week, the United States plans to tighten measures aimed at limiting China's access to advanced microchips and equipment for their production. This is Washington's way of trying to stop its geopolitical rival from obtaining advanced technologies that can be used for military purposes. According to Bloomberg sources, the amendments are aimed at clarifying and closing vulnerabilities in the already existing restrictions. The U.S. presidential administration is particularly focused on restricting exports of graphics chips that can be used in artificial intelligence (AI) technologies, as well as equipment for their production. The U.S. will also impose additional inspections on Chinese companies that try to circumvent export restrictions by shipping through third countries. Chinese microprocessor manufacturers will be placed on the restricted list. Foreign manufacturers will be required to obtain a U.S. license to fulfill orders from such companies.
It won't work. China mostly nationalized chip production including national lithography machines. The first Chinese DUV machines have been producing chips for some time(trial procution), more will be delivered in 2024. China successfully made its own 7nm chips. Chinese national EUV lithography machines will start trials in 2025-2026.

China is the first country to nationalize advanced lithography machines and production nodes. The US is totally dependent on ASML for lithography machines. The US also uses Asian countries for packaging.
 

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I wonder what is holding our government from embarking on higher end chip production. It is not that there is an open sanction on this. 28nm, 22nm and even 14nm should be achievable without major roadblocks. China can be a lithography machine provider if ASML abstains from providing them. We need to put our skin in this game to get to somewhere. Aselsan should make a mobile phone chip that can give performance enough to satisfy 80% of the users. Their Çakıl-2 chip is already 4 core and 22nm. Latest mobile chips are 12 core. Without getting into very high-end processes, we should be able to meet 90% of our overall domestic chip demand and claim an equal amount of export market.
 

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China to impose export controls on graphite used in electric vehicle batteries

In the statement made by the Chinese Ministry of Commerce and General Administration of Customs, it was stated that the export of natural graphite and artificial graphite products of high purity and strength will be subject to permit as of December 1.

In the statement, the reasons for the control measure were given as "protecting China's national security and interests", "complying with international obligations to prevent the spread of nuclear materials" and "ensuring the stability and security of global industrial and supply chains".

Imposing controls on the export of graphite, a pure soft carbon widely used in industry from pencil leads to electric vehicle batteries, is considered as China's move against the US's restrictions on the export of critical technologies.

It is predicted that this move by China, which has the world's largest graphite resources and produces 70 percent of the world's artificial graphite, will escalate the geopolitical competition for the control of critical minerals in supply chains.

Graphite used in electric vehicle batteries can be extracted naturally or produced synthetically from petroleum. Although synthetic graphite allows batteries to charge faster and last longer, it increases the production cost compared to natural material.
 

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Green transition, dirty business: Europe’s struggle to tear loose from Chinese minerals​


A global rush for minerals is underway. Europe wants to revive its mining industry to secure the lithium, nickel, copper and rare earth elements needed for a green future. Investigate Europe sieves fact from fiction in the hunt for critical raw materials.​


"This has been 130 years of encroachment on our nature and abuse of us Sámi in this area," says Karin Kvarfordt Niia.

The ground is slowly caving in around Kiruna in northern Sweden, where Europe’s largest iron ore mine has operated since the late 19th century. Excessive excavation has left Kiruna buckling under the strain of its mineral riches. There are fears that part of the town, with around 20,000 people, will literally sink into the ground. To avoid this, authorities are moving the whole city centre to new land, a mega operation paid for by the state-owned mining company LKAB.

Kiruna was built on indigenous Sámi land. Now the mining company, together with the Swedish government, has announced plans to establish another mineshaft to access a huge find of rare earth elements, and more iron ore. The government sees prosperity and development. For many in the Sámi community, the radical plans mean further erosion of their way of life.

“They have dried up lakes where we used to fish. They have taken away from us areas where our reindeer have grazed forever. We have had to move from our villages,” says Niia, a local Sámi spokesperson.

What coal was to the 19th century, and oil to the 20th, rare earth elements are to the 21st. Other metals are suddenly also becoming crucial, such as lithium, cobalt and nickel. These commodities are essential for the green transition, and for strategic sectors such as defence and space. They are also crucial components for smartphones, televisions, and laptops.

Without sufficient supply of these metals the planned "climate neutrality" will remain a pipe dream, because so far this shall be achieved predominantly by a pure technological switch to wind and solar power or electric vehicles. This needs vast amounts of these metals, far beyond the current supply.

The EU is a major consumer of rare earth elements and other critical raw minerals, but is dependent on others to obtain them. Ten countries dominate the mining of critical raw materials, notably China, Russia, Chile and Democratic Republic of Congo. While the EU banned Russian oil and coal following the Ukraine invasion, imports of critical raw materials persist. Investigate Europe previously revealed how the EU purchased €13.7 billion worth of critical raw materials from Russia following the invasion of Ukraine to July 2023.

But it is the dependency on China that burns brightest. Europe relies on this single supplier for more than 90 per cent of rare earth elements, gallium and magnesium, and China controls more than half the global capacity for the processing of lithium, cobalt and manganese.

“Our main concern is excessive dependencies, meaning dependency on a single source of supply,” Thierry Breton, EU Commissioner for the internal market, tells Investigate Europe. “When we have such dependencies and Russia is at war, or China bans exports, or there is an earthquake in Chile, we can have a problem.”

Europe now wants to bring its supply in-house, freer from Chinese influence. New mining projects are in the works across the continent for the first time in decades. A related law is set to be rubber stamped and ‘green mining’ has become a buzzword around Brussels.

In January, Sweden’s state-owned LKAB announced that they had found a large deposit of rare earth minerals in Kiruna in Lapland. The find coincided with Sweden's presidency of the Council of the EU. During a visit to the city, energy minister Ebba Busch hailed the discovery as a key to the green transition, not just for Sweden but for Europe.

Today, most CRMs are only mined in microscopic quantities in Europe, while ore processing and refining have almost completely disappeared. Europe imports 100 per cent of a variety of important metals.

"At this very moment, if we would produce rare earths in the EU, they would have to go through China (or at least Asia) for some transformation steps into a magnet," says Stephane Bourg of the French Geological Survey. “There is zero plants in the EU transforming rare earth oxide into rare earth metal, which is a very crucial step, even if such projects are in the pipe. If I today dump 10,000 tonnes of neodymium oxide in your garden, you won’t know what to do with it."

Neodymium is a rare earth metal that is not only highly magnetic, but remains so at higher temperatures. Three other rare earths (terbium, dysprosium and holmium) are even better at this. These materials have two things in common: they are needed for modern weapons as well as electric cars, and China controls the market. "We are 100 per cent dependent on China," Thomas Schmall, a Volkswagen executive, recently told the Wall Street Journal.

The Critical Raw Materials Act (CRMA), which could become one of the fastest EU laws ever adopted, aims to reverse this dependency. The Commission presented its proposal on 16 March, and it could be adopted by the end of 2023. Under the plans, which most member states support, there are no national obligatory targets. However, the EU Commission wants the following to come from Europe by 2030:

  • at least 10 per cent of the EU's annual consumption for extraction;
  • at least 40 per cent of the EU's annual consumption for processing;
  • at least 15 per cent of the EU's annual consumption for recycling;
  • no more than 65 per cent of the EU's annual consumption should come from a single third country

What are critical raw materials and rare earths?​


Critical Raw Materials refer to a group of minerals, metals, and other raw materials that are of high economic importance to a country or region. They are also considered essential for the functioning of industries and the development of new technologies. CRMs are crucial for various industrial sectors, including electronics, renewable energy, automotive and aerospace. Rare Earth Elements are a subset of CRMs. They are a group of 17 chemical elements in the periodic table, which include scandium, yttrium, and the 15 lanthanide elements. REEs are used in the production of various high-tech products, such as smartphones, wind turbines, electric vehicle batteries, and advanced weaponry. REEs are vital components in many modern technologies due to their unique properties, including their magnetic, catalytic, and luminescent properties. Rare earths, despite the name, are not necessarily rare in terms of abundance in the Earth's crust, but they are often scattered and not commonly found in high concentrations. This can make their extraction and processing challenging and environmentally impactful. As a result, securing a stable supply of rare earths is of strategic importance to many countries and industries.

Back in 2011, the EU Commission created a list of critical raw materials. It included 14 materials or groups of materials. This year's list includes 34, a sign of their growing economic, strategic and climate importance to the continent. "We need to prove that the Green Deal is not made in China," says Rolf Kuby, director general of the mining lobby Euromines.

At a meeting in Brussels this June, member states proposed commodities for inclusion on the 2023 critical raw materials list. Sixteen of these have recently also been labelled ‘strategic’, meaning related projects would be prioritised for EU funding. The critical raw materials list is based on an analysis by the Joint Research Centre, an EU institute. But this is not just science: “It's a political decision where to draw the line", explains a source who previously worked on the CRMA plans and requested anonymity.

Nickel and copper did not reach the threshold to be declared critical, but were nevertheless included following political pressure. Bauxite was also added after member state lobbying. Poland, meanwhile, a major coal producer, succeeded in adding coking coal to a list which officials argue is essential for the green transition.

Industry has had "enormous influence" on the framing of CRMA, according to campaign group Friends of the Earth. Mining companies, associated metals and minerals companies and their lobby groups have spent more than €21 million a year lobbying and racked up nearly 1,000 meetings with EU decision-makers since 2014.

The CRMA proposal, currently being debated in Brussels, follows the industry’s wish list: faster processing of permits, self-regulation, and “strategic” projects harmful to the environment to be allowed if they are of “overriding public interest”. "CRMA in its current form is a clear example of corporate capture,” Friends of the Earth concludes.

Henrike Hahn, a German MEP, confirms industry’s strong interest. "The industry expects this law as soon as possible,” she says. “But also politicians put a lot of pressure because they want to present some successes.”

The Sámi struggle in Sweden echoes the resistance to mining that is coming to the surface across Europe: when Europe is to depend less on China, that means more industry on European soil.

“Some things are priceless. There are things that are not renewable, they never come back.”​

— Carla Gomes, Portuguese activist

In Kassandra, northern Greece, ElDorado Gold has fenced off an entire mountain, where it plans to open a surface and underground copper mine. The Canadian firm’s wholly owned subsidiary, Hellas Gold, has been repeatedly found in violation of environmental regulations. Local activists are fearful of potential dam failures, due to extreme weather events, and possible harm to water quality for residents.

“We have put in place an extensive monitoring system to make sure our operations don’t affect water quality” Emmy Gazea, the company’s environmental manager assures Investigate Europe.

Two lithium mining projects in the northeast region of Trás os Montes in Portugal, have sparked huge debate about industry in untouched nature. The region was recently recognised by the UN as a “globally important agricultural heritage system”. It is one of only eight such areas in Europe, and the only one in Portugal.

The government says a “very limited” part of this territory will be affected, but Carla Gomes is not convinced. Born in a small village near one of the mining sites, she is now organising an anti-mine movement that has attracted protesters from several countries.

“Some things are priceless,” she says. “There are things that are not renewable, they never come back. Once that region, those mountains, were turned into mines, they would never be mountains again and nothing would ever be the same again.”

However, without such mined materials - essential components for electronics - the modern comforts of daily life would not be possible. “The people are hypocrites,” shouts Peter Tzeferis, a senior mining official in Greece’s ministry of environment and energy, as he waves a colleague’s phone in the air. "They want a phone - and a cheap one at that! - but refuse to even consider what minerals are needed and where they come from. I’ve been repeating this for decades, now I've given up. I think people don't want to know.”

Trying to reduce the demand for minerals and avoiding new mining altogether is not high on the EU agenda. In the EU Commission's 200-page impact assessment published alongside the CRMA proposal, this basic question is directed to a box in the last annex.

Instead, industrial assessments prevail. And the scale of this hunger is staggering: in the next 30 years, mankind will have to mine more than it has in the last 70,000 years. “We, eight billion of us, will use more metal than the 108 billion people who lived before us,” French journalist Guillaume Pitrón wrote in his book Rare Metal Wars.

“The people are hypocrites, they want a cheap phone... but refuse to even consider what minerals are needed. ”​

— Peter Tzeferis, Greek mining official

One widely quoted study estimates that by 2050, Europe will use 21 times more lithium, four times more cobalt (an important raw material for batteries) and four times more dysprosium (a rare earth element used in magnets for electric motors). The study was funded by the metals lobby Eurometaux.

Liesbet Gregoir, the study’s author, says that she based her calculations on data from the International Energy Agency (IEA). "The world needs to invest in new mining. In the short term, if you want to build those electric vehicles or those windmills, there is no scrap to recycle. So we need to mine that material,” Gregoir says. The study predicted that the transportation sector will drive 60 per cent of the increased demand, in part as the EU will ban sales of new petrol and diesel cars from 2035.

A 2021 report by the IEA predicted that total mineral demand globally will increase by a multiple of between two and four times between 2020 and 2040, and demand for battery-related materials such as lithium up to 42 times.


The projections from the IEA and other studies, including from the EU and World Bank, “make many faulty assumptions about future raw material needs”, says Diego Marin, a policy officer at the European Environmental Bureau.

He believes the studies do not differentiate between what is needed and what is wasteful consumption. “These projections also heavily rely on growth of private vehicle use and create a car dependent self-fulfilling prophecy, which supports the car industry narrative.”

No wonder that even Euromines could not say when asked by Investigate Europe how much money and how many new mines would be needed, given the varying projections. "It's impossible to give a figure," says Rolf Kuby, arguing that there are many factors, from technological development to energy prices and industrial processes, that are impossible to model.

There are approximately 100 metals mines operating in Europe today, of which between 40 and 50 mine critical raw materials, according to the IEA. Euromines’ Kuby wants to see another hundred open in the next decade. Alongside Sweden, Greece and Portugal, there are plans at least in France, Norway, Spain, and Finland to open critical raw material mines. Most EU states have potential deposits, according to Euromines.

The true scale of Europe’s mineral resources is unknown because few geological surveys have been made in the last 40 years, in part because Europe abandoned extractive sectors within its borders.

“China is constantly exploring for new deposits, unlike us in Europe that have stopped systematic mineral exploration,” says Alecos Demetriades, a retired mining and exploration geologist at the Hellenic Geological Survey in Athens.
Exploration is only the first step, however. Approving a mine is a lengthy process, and permits take many years to get. It is no coincidence that many are lobbying for the CRMA to significantly shorten this process. Advocates argue that this would not be irresponsible and would not pose a greater threat to the environment, while critics argue that it would

In any case, few banks would take the risk to lend money for mining. Establishing a mine could cost in the region of €1 billion, according to Euromines. "No strategy will come to life without investments," says Margrethe Vestager, the EU Commissioner in charge of competition. “The money should not come through the Commission, which is a huge bureaucracy, not a bank."

The Commission did not earmark a separate fund for the CRMA, although there were attempts to do so. At the same time, the US government is providing several hundred billion dollars to support the green transition there. These subsidies also tempt European companies, not least in the battery business, to choose the US rather than Europe.

The Commission suggested member states could use existing budgets to pay for their new mining endeavors. Germany has already set aside €1 billion, and Sweden and France are also leading the way. But less wealthy nations are likely to be left behind. "We cannot rely on state aid to develop Europe, because otherwise Europe will not develop in two speeds, but many different speeds," Vestager adds.

Although the Commission supports new mines, there is no specific EU funding, nor is any forthcoming from the European Investment Bank. There seem to be two ways to boost European mining: through state aid to develop a European mining industry, or by supporting the expansion of existing mining companies. But only eight per cent of the world’s 200 biggest mining companies in terms of capitalisation, are European.

“China is constantly exploring for new deposits, unlike us in Europe that have stopped systematic mineral exploration.”​

— Alecos Demetriades, retired geologist

Even if there was a bottomless pit of money for projects, the EU's problems would not end. For one thing, mining is a long process, and by the time the raw materials start to be extracted, even new technologies could displace the old ones. Secondly, raw materials are needed now for the green transition, and for the defence and space industries.

Chinese authorities do not care about quarterly business results. They think long-term. Back in 1987, when the US still dominated mining and these metals were of much less importance globally, the then ruler Deng Xiaoping, said: “The Middle East has oil, China has rare earths.” This famous phrase was uttered in Baotau, where more than half of the world's rare earth mining now takes place. A few years ago the proportion was higher, but mining is not the real issue.

"China controls the materials in the refining and metallic level. They don't care who mines the stuff,” explains James Kennedy, an American mine owner who consults the US government on the issue of rare earths. “In fact, they'd prefer you mine it and you pollute your country and you diminish your resources. They build the refining and they make the refining so inexpensive no one else can compete.”

The state-subsidised mining, refining and metals industries in China are not run on a profit principle, in the interests of shareholders, but for geopolitical gain. If it controls raw materials, China can control a number of strategic industries and thus its competitors. As the EU sees it, China has become a "systemic rival".

Investigate Europe contacted the permanent mission of China to the EU in Brussels with questions, but has received no response.

Rare earth metals are not rare in the earth's crust at all, in fact they are essentially everywhere. However, the question is how much. They are called rare because there are usually only a few grams of them in a few tonnes.

That is why it was headline news when the Swedes announced in January that they had found a large deposit of rare earths in Kiruna.

To get to the rare metals, you need to move tonnes and tonnes of stone. It takes hundreds or even thousands of tonnes of rock to extract one kilogram of rare earth metals. These rocks are crushed, soaked in acids and, at the end of a refining process, the metal remains. Plus many, many tonnes of rock that is considered hazardous waste, which also could contain radioactive elements.

Not only mining, but also this refining process, have been vociferously opposed by environmental movements in the US and Europe, due to extensive pollution and health concerns. Instead of spending money on solutions, companies took their business to the eager Chinese. Let the Chinese mine, do the dirty work, and the West will step in at the high value-added end of the supply chain. That was the idea.

The results are widely known, from the children working in the cobalt mines of the Congo, to the water shortages in Chile, to the brutal destruction of nature in China. For the Western world, this was fine for a long time: profits increased, consumers got the gadgets they wanted and pollution was out of sight.

China for its part has followed a long-term, well thought-out strategy, with calculated environmental costs. Over the decades, it has moved up the value chain, building its own defence, high-tech and automotive industries. This year, Chinese car exports overtook German exports.

The EU Commission is working to meet the needs of European industry. But opening masses of new mines in Europe seems unlikely. So Brussels is looking elsewhere.

In June, EU Commission president Ursula von der Leyen visited Brazil, Argentina, Chile and Mexico. She met political officials and also spoke with business leaders and stakeholders. She announced that the EU would invest €10 billion in 108 green projects in Latin America and the Caribbean.

The European Commission President signed a Memorandum of Understanding on Raw Materials with Argentina, and an agreement with Chile. The Commission has already signed strategic partnerships with Canada, Ukraine, Kazakhstan and Namibia, and is negotiating with eight others, including Democratic Republic of Congo and Australia.

An EU diplomat admitted that these partnerships are their solution for the moment, and added that the EU requires the same standards from their partners as in the EU and supports “an environmentally respectful manner” of mining. How the EU intends to ensure such standards on the ground, however, remains to be seen.

Mining and refining are nevertheless still polluting activities, meaning that the EU's strategy of dependence has not changed much in the past 30 years: the default position is still to maintain the welfare of European consumers by exporting environmental damage to the global South.

And so, while Europe might not be set for its own mining renaissance anytime soon, some projects are indeed coming to the global North.

The controversial development in Kiruna exemplifies the EU’s ambitious plans. It is also a stark reminder of the dirty business that lies behind the quest for climate neutrality. As Håkan Jonsson, president of the Swedish Sámi Parliament, aptly says: "For us, the green transition becomes a black transition."



I could not add the statistics and graphs shared in the article. I definitely recommend you check it out.
 

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Green transition, dirty business: Europe’s struggle to tear loose from Chinese minerals​


A global rush for minerals is underway. Europe wants to revive its mining industry to secure the lithium, nickel, copper and rare earth elements needed for a green future. Investigate Europe sieves fact from fiction in the hunt for critical raw materials.​


"This has been 130 years of encroachment on our nature and abuse of us Sámi in this area," says Karin Kvarfordt Niia.

The ground is slowly caving in around Kiruna in northern Sweden, where Europe’s largest iron ore mine has operated since the late 19th century. Excessive excavation has left Kiruna buckling under the strain of its mineral riches. There are fears that part of the town, with around 20,000 people, will literally sink into the ground. To avoid this, authorities are moving the whole city centre to new land, a mega operation paid for by the state-owned mining company LKAB.

Kiruna was built on indigenous Sámi land. Now the mining company, together with the Swedish government, has announced plans to establish another mineshaft to access a huge find of rare earth elements, and more iron ore. The government sees prosperity and development. For many in the Sámi community, the radical plans mean further erosion of their way of life.

“They have dried up lakes where we used to fish. They have taken away from us areas where our reindeer have grazed forever. We have had to move from our villages,” says Niia, a local Sámi spokesperson.

What coal was to the 19th century, and oil to the 20th, rare earth elements are to the 21st. Other metals are suddenly also becoming crucial, such as lithium, cobalt and nickel. These commodities are essential for the green transition, and for strategic sectors such as defence and space. They are also crucial components for smartphones, televisions, and laptops.

Without sufficient supply of these metals the planned "climate neutrality" will remain a pipe dream, because so far this shall be achieved predominantly by a pure technological switch to wind and solar power or electric vehicles. This needs vast amounts of these metals, far beyond the current supply.

The EU is a major consumer of rare earth elements and other critical raw minerals, but is dependent on others to obtain them. Ten countries dominate the mining of critical raw materials, notably China, Russia, Chile and Democratic Republic of Congo. While the EU banned Russian oil and coal following the Ukraine invasion, imports of critical raw materials persist. Investigate Europe previously revealed how the EU purchased €13.7 billion worth of critical raw materials from Russia following the invasion of Ukraine to July 2023.

But it is the dependency on China that burns brightest. Europe relies on this single supplier for more than 90 per cent of rare earth elements, gallium and magnesium, and China controls more than half the global capacity for the processing of lithium, cobalt and manganese.

“Our main concern is excessive dependencies, meaning dependency on a single source of supply,” Thierry Breton, EU Commissioner for the internal market, tells Investigate Europe. “When we have such dependencies and Russia is at war, or China bans exports, or there is an earthquake in Chile, we can have a problem.”

Europe now wants to bring its supply in-house, freer from Chinese influence. New mining projects are in the works across the continent for the first time in decades. A related law is set to be rubber stamped and ‘green mining’ has become a buzzword around Brussels.

In January, Sweden’s state-owned LKAB announced that they had found a large deposit of rare earth minerals in Kiruna in Lapland. The find coincided with Sweden's presidency of the Council of the EU. During a visit to the city, energy minister Ebba Busch hailed the discovery as a key to the green transition, not just for Sweden but for Europe.

Today, most CRMs are only mined in microscopic quantities in Europe, while ore processing and refining have almost completely disappeared. Europe imports 100 per cent of a variety of important metals.

"At this very moment, if we would produce rare earths in the EU, they would have to go through China (or at least Asia) for some transformation steps into a magnet," says Stephane Bourg of the French Geological Survey. “There is zero plants in the EU transforming rare earth oxide into rare earth metal, which is a very crucial step, even if such projects are in the pipe. If I today dump 10,000 tonnes of neodymium oxide in your garden, you won’t know what to do with it."

Neodymium is a rare earth metal that is not only highly magnetic, but remains so at higher temperatures. Three other rare earths (terbium, dysprosium and holmium) are even better at this. These materials have two things in common: they are needed for modern weapons as well as electric cars, and China controls the market. "We are 100 per cent dependent on China," Thomas Schmall, a Volkswagen executive, recently told the Wall Street Journal.

The Critical Raw Materials Act (CRMA), which could become one of the fastest EU laws ever adopted, aims to reverse this dependency. The Commission presented its proposal on 16 March, and it could be adopted by the end of 2023. Under the plans, which most member states support, there are no national obligatory targets. However, the EU Commission wants the following to come from Europe by 2030:

  • at least 10 per cent of the EU's annual consumption for extraction;
  • at least 40 per cent of the EU's annual consumption for processing;
  • at least 15 per cent of the EU's annual consumption for recycling;
  • no more than 65 per cent of the EU's annual consumption should come from a single third country

What are critical raw materials and rare earths?​


Critical Raw Materials refer to a group of minerals, metals, and other raw materials that are of high economic importance to a country or region. They are also considered essential for the functioning of industries and the development of new technologies. CRMs are crucial for various industrial sectors, including electronics, renewable energy, automotive and aerospace. Rare Earth Elements are a subset of CRMs. They are a group of 17 chemical elements in the periodic table, which include scandium, yttrium, and the 15 lanthanide elements. REEs are used in the production of various high-tech products, such as smartphones, wind turbines, electric vehicle batteries, and advanced weaponry. REEs are vital components in many modern technologies due to their unique properties, including their magnetic, catalytic, and luminescent properties. Rare earths, despite the name, are not necessarily rare in terms of abundance in the Earth's crust, but they are often scattered and not commonly found in high concentrations. This can make their extraction and processing challenging and environmentally impactful. As a result, securing a stable supply of rare earths is of strategic importance to many countries and industries.

Back in 2011, the EU Commission created a list of critical raw materials. It included 14 materials or groups of materials. This year's list includes 34, a sign of their growing economic, strategic and climate importance to the continent. "We need to prove that the Green Deal is not made in China," says Rolf Kuby, director general of the mining lobby Euromines.

At a meeting in Brussels this June, member states proposed commodities for inclusion on the 2023 critical raw materials list. Sixteen of these have recently also been labelled ‘strategic’, meaning related projects would be prioritised for EU funding. The critical raw materials list is based on an analysis by the Joint Research Centre, an EU institute. But this is not just science: “It's a political decision where to draw the line", explains a source who previously worked on the CRMA plans and requested anonymity.

Nickel and copper did not reach the threshold to be declared critical, but were nevertheless included following political pressure. Bauxite was also added after member state lobbying. Poland, meanwhile, a major coal producer, succeeded in adding coking coal to a list which officials argue is essential for the green transition.

Industry has had "enormous influence" on the framing of CRMA, according to campaign group Friends of the Earth. Mining companies, associated metals and minerals companies and their lobby groups have spent more than €21 million a year lobbying and racked up nearly 1,000 meetings with EU decision-makers since 2014.

The CRMA proposal, currently being debated in Brussels, follows the industry’s wish list: faster processing of permits, self-regulation, and “strategic” projects harmful to the environment to be allowed if they are of “overriding public interest”. "CRMA in its current form is a clear example of corporate capture,” Friends of the Earth concludes.

Henrike Hahn, a German MEP, confirms industry’s strong interest. "The industry expects this law as soon as possible,” she says. “But also politicians put a lot of pressure because they want to present some successes.”

The Sámi struggle in Sweden echoes the resistance to mining that is coming to the surface across Europe: when Europe is to depend less on China, that means more industry on European soil.

“Some things are priceless. There are things that are not renewable, they never come back.”​

— Carla Gomes, Portuguese activist

In Kassandra, northern Greece, ElDorado Gold has fenced off an entire mountain, where it plans to open a surface and underground copper mine. The Canadian firm’s wholly owned subsidiary, Hellas Gold, has been repeatedly found in violation of environmental regulations. Local activists are fearful of potential dam failures, due to extreme weather events, and possible harm to water quality for residents.

“We have put in place an extensive monitoring system to make sure our operations don’t affect water quality” Emmy Gazea, the company’s environmental manager assures Investigate Europe.

Two lithium mining projects in the northeast region of Trás os Montes in Portugal, have sparked huge debate about industry in untouched nature. The region was recently recognised by the UN as a “globally important agricultural heritage system”. It is one of only eight such areas in Europe, and the only one in Portugal.

The government says a “very limited” part of this territory will be affected, but Carla Gomes is not convinced. Born in a small village near one of the mining sites, she is now organising an anti-mine movement that has attracted protesters from several countries.

“Some things are priceless,” she says. “There are things that are not renewable, they never come back. Once that region, those mountains, were turned into mines, they would never be mountains again and nothing would ever be the same again.”

However, without such mined materials - essential components for electronics - the modern comforts of daily life would not be possible. “The people are hypocrites,” shouts Peter Tzeferis, a senior mining official in Greece’s ministry of environment and energy, as he waves a colleague’s phone in the air. "They want a phone - and a cheap one at that! - but refuse to even consider what minerals are needed and where they come from. I’ve been repeating this for decades, now I've given up. I think people don't want to know.”

Trying to reduce the demand for minerals and avoiding new mining altogether is not high on the EU agenda. In the EU Commission's 200-page impact assessment published alongside the CRMA proposal, this basic question is directed to a box in the last annex.

Instead, industrial assessments prevail. And the scale of this hunger is staggering: in the next 30 years, mankind will have to mine more than it has in the last 70,000 years. “We, eight billion of us, will use more metal than the 108 billion people who lived before us,” French journalist Guillaume Pitrón wrote in his book Rare Metal Wars.

“The people are hypocrites, they want a cheap phone... but refuse to even consider what minerals are needed. ”​

— Peter Tzeferis, Greek mining official

One widely quoted study estimates that by 2050, Europe will use 21 times more lithium, four times more cobalt (an important raw material for batteries) and four times more dysprosium (a rare earth element used in magnets for electric motors). The study was funded by the metals lobby Eurometaux.

Liesbet Gregoir, the study’s author, says that she based her calculations on data from the International Energy Agency (IEA). "The world needs to invest in new mining. In the short term, if you want to build those electric vehicles or those windmills, there is no scrap to recycle. So we need to mine that material,” Gregoir says. The study predicted that the transportation sector will drive 60 per cent of the increased demand, in part as the EU will ban sales of new petrol and diesel cars from 2035.

A 2021 report by the IEA predicted that total mineral demand globally will increase by a multiple of between two and four times between 2020 and 2040, and demand for battery-related materials such as lithium up to 42 times.


The projections from the IEA and other studies, including from the EU and World Bank, “make many faulty assumptions about future raw material needs”, says Diego Marin, a policy officer at the European Environmental Bureau.

He believes the studies do not differentiate between what is needed and what is wasteful consumption. “These projections also heavily rely on growth of private vehicle use and create a car dependent self-fulfilling prophecy, which supports the car industry narrative.”

No wonder that even Euromines could not say when asked by Investigate Europe how much money and how many new mines would be needed, given the varying projections. "It's impossible to give a figure," says Rolf Kuby, arguing that there are many factors, from technological development to energy prices and industrial processes, that are impossible to model.

There are approximately 100 metals mines operating in Europe today, of which between 40 and 50 mine critical raw materials, according to the IEA. Euromines’ Kuby wants to see another hundred open in the next decade. Alongside Sweden, Greece and Portugal, there are plans at least in France, Norway, Spain, and Finland to open critical raw material mines. Most EU states have potential deposits, according to Euromines.

The true scale of Europe’s mineral resources is unknown because few geological surveys have been made in the last 40 years, in part because Europe abandoned extractive sectors within its borders.

“China is constantly exploring for new deposits, unlike us in Europe that have stopped systematic mineral exploration,” says Alecos Demetriades, a retired mining and exploration geologist at the Hellenic Geological Survey in Athens.
Exploration is only the first step, however. Approving a mine is a lengthy process, and permits take many years to get. It is no coincidence that many are lobbying for the CRMA to significantly shorten this process. Advocates argue that this would not be irresponsible and would not pose a greater threat to the environment, while critics argue that it would

In any case, few banks would take the risk to lend money for mining. Establishing a mine could cost in the region of €1 billion, according to Euromines. "No strategy will come to life without investments," says Margrethe Vestager, the EU Commissioner in charge of competition. “The money should not come through the Commission, which is a huge bureaucracy, not a bank."

The Commission did not earmark a separate fund for the CRMA, although there were attempts to do so. At the same time, the US government is providing several hundred billion dollars to support the green transition there. These subsidies also tempt European companies, not least in the battery business, to choose the US rather than Europe.

The Commission suggested member states could use existing budgets to pay for their new mining endeavors. Germany has already set aside €1 billion, and Sweden and France are also leading the way. But less wealthy nations are likely to be left behind. "We cannot rely on state aid to develop Europe, because otherwise Europe will not develop in two speeds, but many different speeds," Vestager adds.

Although the Commission supports new mines, there is no specific EU funding, nor is any forthcoming from the European Investment Bank. There seem to be two ways to boost European mining: through state aid to develop a European mining industry, or by supporting the expansion of existing mining companies. But only eight per cent of the world’s 200 biggest mining companies in terms of capitalisation, are European.

“China is constantly exploring for new deposits, unlike us in Europe that have stopped systematic mineral exploration.”​

— Alecos Demetriades, retired geologist

Even if there was a bottomless pit of money for projects, the EU's problems would not end. For one thing, mining is a long process, and by the time the raw materials start to be extracted, even new technologies could displace the old ones. Secondly, raw materials are needed now for the green transition, and for the defence and space industries.

Chinese authorities do not care about quarterly business results. They think long-term. Back in 1987, when the US still dominated mining and these metals were of much less importance globally, the then ruler Deng Xiaoping, said: “The Middle East has oil, China has rare earths.” This famous phrase was uttered in Baotau, where more than half of the world's rare earth mining now takes place. A few years ago the proportion was higher, but mining is not the real issue.

"China controls the materials in the refining and metallic level. They don't care who mines the stuff,” explains James Kennedy, an American mine owner who consults the US government on the issue of rare earths. “In fact, they'd prefer you mine it and you pollute your country and you diminish your resources. They build the refining and they make the refining so inexpensive no one else can compete.”

The state-subsidised mining, refining and metals industries in China are not run on a profit principle, in the interests of shareholders, but for geopolitical gain. If it controls raw materials, China can control a number of strategic industries and thus its competitors. As the EU sees it, China has become a "systemic rival".

Investigate Europe contacted the permanent mission of China to the EU in Brussels with questions, but has received no response.

Rare earth metals are not rare in the earth's crust at all, in fact they are essentially everywhere. However, the question is how much. They are called rare because there are usually only a few grams of them in a few tonnes.

That is why it was headline news when the Swedes announced in January that they had found a large deposit of rare earths in Kiruna.

To get to the rare metals, you need to move tonnes and tonnes of stone. It takes hundreds or even thousands of tonnes of rock to extract one kilogram of rare earth metals. These rocks are crushed, soaked in acids and, at the end of a refining process, the metal remains. Plus many, many tonnes of rock that is considered hazardous waste, which also could contain radioactive elements.

Not only mining, but also this refining process, have been vociferously opposed by environmental movements in the US and Europe, due to extensive pollution and health concerns. Instead of spending money on solutions, companies took their business to the eager Chinese. Let the Chinese mine, do the dirty work, and the West will step in at the high value-added end of the supply chain. That was the idea.

The results are widely known, from the children working in the cobalt mines of the Congo, to the water shortages in Chile, to the brutal destruction of nature in China. For the Western world, this was fine for a long time: profits increased, consumers got the gadgets they wanted and pollution was out of sight.

China for its part has followed a long-term, well thought-out strategy, with calculated environmental costs. Over the decades, it has moved up the value chain, building its own defence, high-tech and automotive industries. This year, Chinese car exports overtook German exports.

The EU Commission is working to meet the needs of European industry. But opening masses of new mines in Europe seems unlikely. So Brussels is looking elsewhere.

In June, EU Commission president Ursula von der Leyen visited Brazil, Argentina, Chile and Mexico. She met political officials and also spoke with business leaders and stakeholders. She announced that the EU would invest €10 billion in 108 green projects in Latin America and the Caribbean.

The European Commission President signed a Memorandum of Understanding on Raw Materials with Argentina, and an agreement with Chile. The Commission has already signed strategic partnerships with Canada, Ukraine, Kazakhstan and Namibia, and is negotiating with eight others, including Democratic Republic of Congo and Australia.

An EU diplomat admitted that these partnerships are their solution for the moment, and added that the EU requires the same standards from their partners as in the EU and supports “an environmentally respectful manner” of mining. How the EU intends to ensure such standards on the ground, however, remains to be seen.

Mining and refining are nevertheless still polluting activities, meaning that the EU's strategy of dependence has not changed much in the past 30 years: the default position is still to maintain the welfare of European consumers by exporting environmental damage to the global South.

And so, while Europe might not be set for its own mining renaissance anytime soon, some projects are indeed coming to the global North.

The controversial development in Kiruna exemplifies the EU’s ambitious plans. It is also a stark reminder of the dirty business that lies behind the quest for climate neutrality. As Håkan Jonsson, president of the Swedish Sámi Parliament, aptly says: "For us, the green transition becomes a black transition."



I could not add the statistics and graphs shared in the article. I definitely recommend you check it out.

We need to learn to extract and purify our own rare earth minerals as soon as possible.
 

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Circumventing the Chokepoint: Can the US Produce More Rare Earths?​


Nowhere is China’s critical mineral dominance greater than in rare earth supply chains. In 2022, the US government estimated that China controlled “nearly 60 percent of mined production, over 85 percent of processing capacity, and over 90 percent of permanent magnet production.”

Yet what’s at stake is clear, especially since the US government deems these materials necessary to national security. Rare earths—which include the fifteen lanthanide series elements plus scandium and yttrium—are critical not only to energy technology like permanent magnets in electric vehicles and offshore wind turbines but also to military applications like lasers and precision-guided weapons. These elements enable defense equipment and weapons system components to function.

Yet while US presidential determinations have declared that domestically producing light and heavy rare earths, rare earth metals and alloys, samarium cobalt magnets, and neodymium iron boron magnets “is essential to the national defense,” the US relies nearly entirely on foreign imports for its consumption of rare earth compounds and metals. Indeed, over 70 percent of those imports are from China. This state of affairs means that China can alter rare earth supplies to undermine US economic prosperity and national security at will.

The US government has sought to increase its domestic rare earth production, but only to limited effect thus far. To better encourage private sector investment in American rare earth projects, it must lower the industry’s high barriers to entry—including capital costs, technical challenges, and an incumbent oligopoly.

Current Constrictions

China dominates the production of rare earths. While the United States does produce rare earths at MP Materials’ Mountain Pass mine in California, these rare earths are mainly light rare earths, such as the neodymium and praseodymium used for permanent magnets.

Meanwhile, China (along with Myanmar) controls 100 percent of the global production of heavy rare earths, like dysprosium and terbium, which are both more scarce and often deemed more important than light rare earths given their advanced applications like laser crystals. With its production dominance across rare earths, China can influence global rare earth stocks by restricting its supply (which can drive up shortages) or increasing its supply (which drives down global prices and can drive out competitors).

China has done both over the past decade or so. Amid a diplomatic row with Japan in September 2010, China temporarily blocked rare earth exports to that country. (China denied doing so.) Conversely, in late 2014, China removed export quotas on rare earths, increasing global supply and decreasing global prices, which partly contributed to bankrupting Molycorp, which was then the owner of Mountain Pass.

Technological innovation for rare earths is another category in which China leads. From 1950 to October 2018, China filed 25,911 rare earth patents, while the United States filed only 9,810. Thus, China can also restrict rare earth technology. In April 2023, for instance, Nikkei Asia reported that China was considering restricting exports of rare earth magnet technology.

China’s overall rare earth dominance grants it leverage over US national security and economic prosperity, given the necessity of rare earths in many advanced technologies.

Strengthening Supply

To reduce its rare earth reliance on China, the US government has long sought to increase domestic production across the rare earth supply chain. Numerous rare earth bills have been introduced in Congress, but few have become law.

For instance, in 2010, US Senator Lisa Murkowski (R-AK) introduced the Rare Earths Supply Technology and Resources Transformation Act, and the US House of Representatives passed the Rare Earths and Critical Materials Revitalization Act, but neither bill became law. In subsequent years, other rare earth bills have been introduced but not signed into law, including the Obtaining National and Secure Homeland Operations for Rare Earth and Manufacturing Act and the Rare Earth Magnet Manufacturing Production Tax Credit Act in this Congress. (Domestic manufacturing plants of neodymium-iron-boron magnets remain eligible for investment tax credits after the Inflation Reduction Act became law in 2022.)

The executive branch has proven to be the US government’s chief means of disbursing grants and contracts to companies seeking to build American rare earth projects. This has led to $45 million going to MP Materials, $94 million to E-VAC Magnetics, and $288 million to Lynas USA. This effort largely began in 2019 after former US President Donald Trump issued presidential determinations under the Defense Production Act, which authorized $250 million to boost domestic production across the rare earth supply chain.

Subsequent legislation has also provided the US Department of Defense with $864 million to fund strategic and critical materials projects, including rare earth projects. US President Joe Biden has also requested $276 million in 2024 and $244 million in 2025 to fund such projects.

Bringing Down Barriers

Despite these US government efforts to boost domestic rare earth production, the private sector has hitherto invested narrowly in American rare earth projects due to the industry’s high barriers to entry.

Regulatory issues, from permitting timeframes to environmental reviews, have been major barriers to entry, and these issues have been discussed extensively. Yet other key barriers to entry include capital costs, technical challenges, and an incumbent oligopoly. To encourage private sector investment in American rare earth projects, the US government must work to lower all of these barriers to entry.

First, rare earth and related manufacturing projects—from mines to magnet facilities—have high capital costs. Dylan Kelly of the Australian investment firm Terra Capital notes that companies need at least $1 billion to commission a rare earth project.

The necessary sums can be startling. California’s Mountain Pass rare earth mine required $1.7 billion in investment for modernization and restart expenses in the early 2010s. Downstream, Lynas has invested about $1 billion in its rare earth refinery in Malaysia. Similarly, Iluka’s separated rare earth oxide refinery in Australia will cost up to $770 million, and Lynas’s rare earth cracking and leaching plant in Australia will cost an estimated $470 million. Additionally, MP Materials’ magnet production facility in Texas will require a $700 million investment.

The US Department of Energy’s Loan Programs Office (LPO) could offer more low-cost loans for rare earth projects to address these high capital costs. Rare earth projects are eligible for LPO lending under the Title 17 Clean Energy Financing Program and Advanced Technology Vehicles Manufacturing Program, but the LPO has yet to offer loans to such efforts.

Rare earth projects are also technically challenging. Sebastien Meric, Solvay’s head of rare earths, notes that refining different rare earth ores requires different processes, which can take up to 1,500 steps.MP Materials has been seeking for three years to refine its mined rare earths, although it did recently start refining small amounts of these resources. The technical difficulties are illustrated by observing that the success rate for rare earth projects entering production between 2011 and 2021 was only 1.5 percent.

These technical challenges have been compounded by a limited, qualified workforce. So the US government could support skill development programs to address this issue. The Mining Schools Act, which the US Senate Energy and Natural Resources Committee recently reported out of committee favorably, could help address this skills shortage in the mineral industry.

Overcoming Oligopoly

A third relevant factor is that the rare earth supply chain is an oligopoly, with dominant incumbents holding significant market influence. For example, the Bayan Obo mine in China alone comprised 45 percent of global rare earth mine production in 2019. Also, present rare earth incumbents are often state-backed enterprises with access to low-cost, long-tenure, limited recourse loans. This means that new market entrants must compete against both companies and countries. (For instance, Japan backs Lynas, Germany backs Hastings, Australia backs Iluka, and the United States backs MP Materials and Lynas.)

Amid this oligopoly, the US government could offer long-term procurement contracts—such as supplying the US military—to American rare earth companies. As the world’s largest purchaser of goods, the US government could be a key customer for American rare earth companies. The Department of Defense could also increase the number of rare earths in the National Defense Stockpile by procuring domestically produced rare earths.

China’s present rare earth dominance affords it leverage over US national security and economic prosperity. To reduce this vulnerability, the US government has sought to increase domestic rare production, but to limited effect.

To better encourage private sector investment in American rare earth projects, the US government must lower the industry’s high barriers of entry, including capital costs, technical challenges, and an incumbent oligopoly. Adopting the policies laid out above and others can encourage domestic rare earth production and reduce American reliance on Chinese rare earths.

Gregory Wischer is Principal at Dei Gratia Minerals, a critical minerals consultancy.

Morgan Bazilian is Director of the Payne Institute and Professor of Public Policy at the Colorado School of Mines.

Sources: Australian Financial Review; Asia Briefing; The Breakthrough Institute; Defense Daily; Export Finance Australia; Federal Register; Financial Times; Fluor; GAO; Government of Canada; GSA; Hastings; McKinsey; New York Times; Politico; Reuters; Science Direct; Science News; SEC; South China Morning Post; U.S. Congress; U.S. Department of Commerce; U.S. Department of Defense; U.S. Department of Energy; U.S. Department of the Interior; U.S. Representative Eric Swalwell; U.S. Senate; Wall Street Journal; White House Press Office
 

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Deciphering the Changing Contours of the China-US Chip War​


The latest U.S. restrictions on China’s semiconductor industry aim to plug loopholes, but will create new ones in turn.


In the ongoing chip war between the United States and China, American regulators have fired a new salvo with a fresh set of rules to tighten the October 2022 export control measures. The latest round of restrictions is aimed at plugging loopholes in the previous sanctions. The new rules target the chips that power high-end AI systems and the semiconductor equipment machinery that aids the domestic production of leading-edge chips in China. The previous restrictions failed to curb domestic manufacturing in Chinese foundries, as Semiconductor Manufacturing International Corporation (SMIC) mass-produced 7 nanometer chips to power Huawei’s Mate 60 Pro, which has recorded millions of sales in China.

A major loophole in the previous round of measures came from the narrow approach of restricting chips based on their bandwidth. To evade the restrictions, American chipmakers could easily make new chips with lower bandwidth and identical performance. The new restrictions avoid the pitfall of bandwidth and restrict chips based on their total processing performance (TPP).

The new rules have serious implications for China’s ability to produce high computing machinery. They restrict a variety of graphics processing units (GPUs) that earlier were not under the radar of export controls like the GPU L40 and AMDMI210. The United States has principally restricted all performance application specific integrated circuits (ASICs) that chipmakers previously manipulated to run on any hardware that passed the regulations. This regulatory move largely limited China’s potential with respect to transformers and diffusion models that power the AI-run machines and programs.

China faces a crucial state of handicap in the segment of semiconductor manufacturing equipment, as this chokepoint technology significantly affects China’s overall ability to domestically produce chips. The new rules enhance the scope of restrictions for the sale of etching tools, EPI tools, mask-making tools, and atomic layer deposition (ALD) tools among others previously covered.

Concerning China’s ability to repurpose the lagging-edge deep ultraviolet (DUV) tools, the Biden administration now revamped the restriction on DUV tools by adding the criteria “Dedicated Chuck Overlay,” which aims to restrict tools with an overlay below 2.4 nm. In lithography technique, an overlay determines the accuracy of patterns and layers that are printed on the wafer. China’s maneuvering for the 7 nm technology was achieved as the Dutch firm ASML restricted exports to 1.5 nm, which excluded the export of the 1980i tool to SMIC. The United States will be able to extend this rule to the Netherlands’ ASML by using its Foreign Direct Product (FDP) rule.

Assessing the Nature and Efficacy of the New Rules

The new ecosystem of chip restrictions employed by the United States’ Bureau of Industry Standards (BIS) creates two zones: a black zone that completely restricts the exports and imposes a licensing regime under the entity list, and a grey zone that allows the export of certain chips with 25-day prior notice and examination by the regulators. The grey zone creates possibilities for another set of loopholes in the U.S. sanctions.

Previously, American chipmakers like Nvidia were able to bypass the sanctions as they could make specifically manufactured chips to be shipped to China. Under the new rules, that is hardly possible as the specifications pertaining to TPP, chip density, and bandwidth are nearly impossible to evade. The entire line of Nvidia chips comes under the defined spectrum except for 30A series, which are not crucial for AI capability. What could possibly be done by the American chipmakers is to sell a small number of mediocre chips that would largely hamper the demands coming from China. Thus, in the case of AI chips, the restrictions are nearly impossible to bypass.

In the segment of semiconductor manufacturing equipment, the rules apparently adopt an approach to harmonize with the Dutch and Japanese restrictions, which were released earlier this year. Even though the FDP rule extends solely to American components, which make up just 25 percent of the total, for ASML evading this rule by manufacturing machines devoid of U.S. technology will take several years.

Though the United States goes a step further by restricting the equipment with an overlay below 2.4 nm, the restrictions are imposed only on the biggest foundries in China. This is an area that can be easily manipulated to supply equipment in China.

With the current pace of acceleration in China’s domestic industry, hundreds of semiconductor foundries are expected to open up in the coming years. Since the export of 1980i tools is restricted to only a handful of fabs in China under the “advanced foundries” category, it will not be difficult for small foundries, backed by huge Chinese government subsidies, to import Dutch machinery. Under the cusp of a looming environment of more stringent restrictions, more and more immature foundries can be set up and eventually turn around into mature foundries, for example, China’s CXMT. Therefore, the “advanced fabs” loophole is a matter of concern if the American regulators still expect that Chinese firms cannot avail themselves of technological access through clandestine means.

Despite the fact that the Biden administration has made the rules almost impossible to evade to support China’s AI computing capability, the leniency on lagging edge chips can ultimately fail to de-risk the supply chain. The loopholes in semiconductor manufacturing equipment exports will continue to boost American competitiveness only in design and software as compared to manufacturing. As long as Chinese firms have access to semiconductor manufacturing equipment, even for manufacturing lagging-edge chips, its prominence in the supply chain for foundries and ATP facilities will remain less hindered. Moreover, SMIC’s ability to repurpose the lagging edge machinery to produce a leading-edge 7 nm processor cannot be ignored.

Although the updated rules aim to curb the use of American technology components in China’s military-civil fusion (CMF) policy and to reduce China’s capability to use AI chips for military purposes, they are less effective in addressing the chip manufacturing potential for a vast set of electronic applications, China’s continuous R&D potential, and the Chinese way of copying technology tools.

What Lies Ahead?

The latest restrictions will significantly impact the course of China’s domestic semiconductor manufacturing. The visible option left for China is to produce homegrown abilities in the AI industry that reduce reliance on American technology in the long term. The difference that these new sanctions make is that they necessitate a faster growth of China’s AI chip infrastructure.

With the AI Accelerator programs, China may start exploring alternative ideas to maneuver AI techniques, especially for GPUs, than its rivals. The Chinese state and corporations are expected to invest heavily in memory computing, analog technology, neuromorphic computing, etc. A short path dependence may be expected from Huawei. Its recent breakthrough with 7 nm technology and its capability to mass produce the device signals the stockpiling of equipment and software.

While it is yet to be seen how the move creates ripples in China’s semiconductor sector, the recent measures definitely bring concerns and will impact the competitiveness of advanced chipmakers like Nvidia and AMD in the ongoing and increasingly intensifying technology war.

AUTHORS​

Megha Shrivastava​

Megha Shrivastava is a Dr. TMA Pai Fellow and a doctoral candidate at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education, India. Her work focuses on China’s ICT industry.

 

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