Australia and Its Partners Must Do more to Avoid Dependence on China for Rare Earths

Canada has also begun addressing the issue, announcing last month that any foreign state-owned enterprise looking to purchase Canadian assets in the sector could be subject to a comprehensive review to ensure the purchase is not ‘injurious to national security’. This effective national interest test reverses the default towards investment and short-term company profit and instead prioritizes Canada’s security and sovereignty.

And by ordering divestiture by foreign investors in three Canadian critical mineral companies, Prime Minister Justin Trudeau’s government has made it clear that this is a new economic security approach, not a rhetorical warning.

In Australia, former PM Scott Morrison’s government set some foundations for growing Australia’s critical minerals sector and expanding downstream processing, and followed up with a $1.25 billion loan through the Critical Minerals Facility to Australian company Iluka Resources to set up the country’s first integrated rare-earths refinery, moving Australia up the sector’s value chain.

Last month, at a conference co-hosted by ASPI and the Australian National University, Resources Minister Madeleine King vowed to ‘make the most of the natural endowment we have of these resources so that we can provide an alternative source of them from China’.

The $50 million in grants that King announced in September to help Australia become a ‘global supplier’ of rare earths is a positive move, though the news that Australian ‘rare earths aspirant’ VHM Limited plans to sell 60% of its product to Chinese state-owned company Shenghe is a setback to plans to achieve strategic independence in rare earths.

Last week, the Albanese government announced it is considering ways to limit China’s investment and influence in Australia’s critical-minerals industry.

And there are opportunities well beyond Australia, Canada, the US and Japan. While the German government continues to find ways to misjudge the reality of the Russian and Chinese regimes, even Chancellor Olaf Scholz ahead of his ill-considered trade visit to Beijing said that ‘where risky dependencies have developed—for important raw materials, some rare earths or certain cutting-edge technologies, for example—our businesses are now rightly putting their supply chains on a broader footing. And we are supporting them in this, for example with new raw material partnerships.’ Australia must not miss this opportunity.

It’s a positive sign that so many like-minded countries, including Australia, are not just identifying that there’s a problem but are willing to take action. Sovereign resilience is beyond the reach of any one country. Now is the time for ‘minilateralism’ to take center stage. Australia has an opportunity to provide the kind of leadership that will see Japan, Canada, the US and others create new mines, new midstream processing and new manufacturing of rare earths and critical minerals. These countries beginning the journey together will increase confidence of others, particularly in our near region, to join.

For years, the CCP has acted outside the market to maintain its level of control of the sector. Piecemeal efforts pose little trouble to Beijing, but a growing sense of open, liberal societies working together has it worried, which is why it is doing what it can to stifle collective action.

Some observers will continue to argue that governments must stay out of the free market. But this merely means that governments like Australia’s stay out while the Chinese and Russian regimes consolidate control.

Market forces won’t, on their own, provide economic resilience and a secure supply chain. Collectively, we can provide a viable, competitive alternative market that offers products through supply chains that are secure from domestic policy disruptions and economic coercion.

Without action, there will be no choices, no alternatives and no free market. In choosing not to act, Australia would effectively be choosing to become as dependent on Beijing for rare earths as Europe has been on Moscow for energy. The choice is still ours.

John Coyne is head of ASPI’s Northern Australia Strategic Policy Centre and strategic policing and law enforcement program. Justin Bassi is executive director at ASPI.This article is published courtesy of the Australian Strategic Policy Institute (ASPI).