China’s Rare Earth Resources in the Hands of a Few Corrupt Officials

Earthmovers scoop soil containing rare earth at a port in Lianyungang, east China's Jiangsu Province, on Sept. 5, 2010. (STR/AFP/Getty Images)

After a series of anti-American propaganda followed the latest round of U.S.-China trade talks, the Chinese state media has recently put the spotlight on rare earth as a trade war weapon. Rare earth is controlled by a few Chinese conglomerates, owned by the elite of the Communist Party and those who have close ties to former leader Jiang Zemin.

Rare earth elements are key components in many of today’s high-tech products, from consumer electronics including smartphones, digital cameras and flat screen televisions to modern weapons such as missiles.

Before the 1990s, the United States was almost the only supplier of rare earth in the whole world. It was until 1992 that former Chinese leader Deng Xiaoping made rare earth mining and export one of China’s development strategies. China’s rare earth production quickly increased ten-fold in the following 15 years. Presently, China supplies about 80 percent of the rare earth elements imported by the United States, according to U.S. Geological Survey data.

The rare earth mines in China are mostly located in Inner Mongolia, Jiangxi, Guangdong, Sichuan, Shandong Provinces. More specifically, light rare earths are predominantly located in the Inner Mongolia where the rare earth reserves account for more than 83 percent of the total rare earth reserves in the country. The medium and heavy rare earths are mainly found in the southern regions such as Ganzhou City of Jiangxi Province, Longyan City of Fujian province. Rare earth deposits are generally found in seven provinces in south China–Jiangxi, Guangdong, Guangxi, Fujian, Hunan, Yunnan, and Zhejiang.

China’s major rare earth enterprises include China Northern Rare Earth Group, Ganzhou Rare Earth Group, Rising Nonferrous Metals Share Co. Ltd, Chinalco Rare Earth & Metals Co. Ltd (a subsidiary of China Aluminum Corp.), Minmetals Group Corp., Xiamen Tungsten Co. Ltd, and China Nonferrous Metal Mining Group.

Jiang Zemin’s Faction and Rare Earth Mines

Similar to other lucrative industries in China, these enterprises are controlled by China’s “princelings”—the descendants of prominent and influential senior communist officials. It is noteworthy that these princelings are all members of the “Jiang faction”; that is, they are loyal to the former Chinese Communist Party leader Jiang Zemin.

For instance, Guo Shengkun, a current Politburo member, had previously served as Deputy Director of the National Nonferrous Metals Industry Bureau, General manager and party boss at China Aluminum Corporation. The Epoch Times learned from an anonymous source that Guo is the nephew of Zeng Qinghong, former vice president of China from 2003 to 2008 and a close ally of Jiang.

Zhou Yongkang and Luo Gan, both served as security chiefs under Jiang’s leadership, were linked to one of the biggest corruption cases involving a molybdenum mine in Luoyang City, Henan Province.

The case was exposed when former mayor of Luoyang City Sun Shangwu was given the death penalty with a two-year suspension in 2010, on charges including bribery. According to a report from Beijing News on June 12, 2016, Sun kept appealing, saying that he was a victim of a frame-up because he rejected an acquisition proposal for the molybdenum mine when he was the mayor in 2003. Molybdenum is used to make some missile and aircraft parts and is used in the nuclear power industry.

Sun’s daughter posted a letter of accusation on Weibo, a Twitter like platform, exposing the details about how Luo Gan and Zhou Yongkang later acquired the mine worth of 470 billion yuan ($68 billion) with only 45 million yuan ($6.5 million), through manipulation of stock shares of China Molybdenum Co., Ltd from 2005 to 2006.

In 2009, Luoyang municipal government purchased the mine back from China Molybdenum Co. Ltd and its affiliated company. It was another lucrative transaction as the price it paid was 2.5 billion yuan only ($362 million yuan), and all the money went to Zhou, Luo and their cronies’ pockets.

The ‘Rare Earth Trump Card’ Will Hurt China

Frank Tian Xie, business professor at the University of South Carolina–Aiken, wrote a commentary for Epoch Weekly on May 21, in which he explained that restrictions of rare earth exports would not serve any use for China to win the trade war.

First, there are alternative suppliers of rare-earth elements that the United States could turn to, because Brazil, Russia, the United States, and Japan all have rare earth reserves.

Last April, Japan discovered 16 million tons worth of rare earth deposits off Minami-Tori-shima island, which scientists said would provide hundreds of years’ worth of rare earth minerals.

Xie also explained in his commentary that China cannot afford to play the “rare earth trump card” for its own interests.

“If China cuts off its rare earth supply to the United States, prices for rare earth elements will go up. In turn, United States, Brazil, and India will resume the rare earth mining industry. When they reach a reasonable production capacity, China will lose this market, and very likely lose it for good,” he wrote.

Moreover, so far China’s domestic high-tech manufacturing industry does not have enough capacity to make use of the rare earth minerals, and hence relies on exporting them to other countries in order to sustain its rare earth mining industry. As a result, this “trump card” will come back to haunt China, Xie concluded.

China’s Propaganda Chief: Part of Jiang Faction

Wang Huning, a member of the Politburo Standing Committee in charge of ideology, propaganda and party organization, is also Chinese leader Xi Jinping’s top foreign policy aide.

Based on his background, he is also a member of the Jiang faction.

Wang was previously a scholar in Shanghai’s Fudan University. In 1995, on strong recommendation from top Shanghai politicians Zeng Qinghong and Wu Bangguo, Jiang promoted Wang to work as Political Team Leader for Policy Studies in Central Committee of Chinese Communist Party.

U.S.-based Chinese commentator Xia Xiaoqiang believed that Wang is the key person in helping Xi make these important decisions, including the strategy of using rare earth as a trump card in the trade war. Misled by Wang and other Jiang faction cronies, Xi has misjudged the situation and put himself in a very awkward position.

Epoch Times reporter Sima Jing contributed to this report.