Platt Perspective on Business and Technology

The China Conundrum and its implications for international cyber-security – 4

Posted in business and convergent technologies by Timothy Platt on February 2, 2011

This is my fourth posting to date in a series on China, and I have focused largely on issues internal to that country as they affect its long term stability and its long term policies. I have cited the mining and production of rare earth minerals in this context, and have said I would focus on this part of the larger story in an upcoming posting – I will do that here, having laid a foundation to build this discussion on. But I want to start out by putting this story in a larger and even global perspective, and I start by noting a conversation I had with a colleague a few days ago. And he asked me a pair of questions I would repeat here. “Why should I be interested in rare earth minerals mining in China? How would that affect me or my business here in the United States?” And I would start my answer to that by noting the concept of strategic minerals – mineral resources essential to military, industrial and/or commercial processes or products but whose key sources are located outside of the country, and in regions or countries that show potential for political or economic unrest and sourcing disruption.

The United States maintains a strategic minerals list which currently includes 93 entries, many from Africa and countries like Afghanistan. All of the rare earth elements and the key minerals they are extracted from are included on strategic minerals lists for any country that manufactures high technology products, including electronics and computer hardware, solar panels and wind turbines and a growing range of other increasingly important products. And even the possibility of threat to limit supply for these minerals would cause concern in both the private sector and for national defense.

Some 96% of all rare earth minerals are currently mined in Southern China and 99% of the rarest and most valuable heavy rare earth minerals are mined there. So any potential for supply disruption coming from China would have significant global impact. I note in this context that China has recently used its near monopoly on rare earth minerals as a tool and as a diplomatic weapon in its dealings with Japan and other countries, at least briefly cutting off supplies sold to them as a means of negotiating its position on politically charged issues. (See: Bradsher, K. Sept. 23, 2010. In dispute, China blocks rare earth exports to Japan. New York Times, page B-1 and Bradsher, K. Dec. 29, 2010. China to cut rare earths trade in 2011. New York Times, page B-2.)

So this may in one sense be a China story but it is a more far reaching global story as well and one that does impact on businesses and business people everywhere. And with that as a forwarding note I turn to the story of rare earth mining in China itself and to its Guangdong and Jiangxi Provinces.

Guangdong and Jiangxi are being poisoned by tailings and toxic compounds coming from illegal (to the Central Government) mines, operated by illegal gangs and undocumented private enterprises, and condoned and supported by local governments (see Bradsher, K. Dec. 30, 2010. The illegal scramble for rare metals. New York Times, page B-1.) And the prices and profits in these operations rival those of the drug trade. By way of example, one of the key heavy rare earth elements extracted from these minerals, crucial for clean energy systems, dysprosium sold for approximately $6.50 per pound on the open market in late 2003. At the end of 2010 the cost of dysprosium had risen to $132 and more per pound.

I have written of China’s shadow and black market economy in earlier installments in this series (see Ubiquitous Computing and Communications – everywhere all the time, postings 69, 71 and 72.) For its scale and international impact, rare earth minerals mining can be viewed as the poster child story exemplifying China’s internal economic fault lines and instabilities stemming from that. But I turn back to this to examine it as an internal matter and as a lens into China as a country and as a national system and economy.

China faces the exact same internal challenges here that I wrote of in a Latin American context in my second posting in this series. Their central government is now reaching out to take control of these resources from provincial and local control and oversight and probably at least in part due to the international news coverage this story is gaining with the embarrassment that creates (see Bradsher, K. Jan 21, 2011. China seized rare earth mine areas. New York Times, page B-1.)

China is placing at least portions of Jiangxi Province under the auspices of Ministry of Land and Resources management at least for its mineral wealth. This will involve taking control of at minimum 11 mining districts and will probably expand from there and into parts of Guangdong Province as well. That has the effect of placing these mining areas under centralized State Council control and of lessening the impact of possible local and provincial government collusion with local black market and shadow economy enterprises. And it is certain that this is being done in significant part as an attempt to try and capture back the roughly 50% of all rare earth minerals mining and sales that have been enriching the shadow and black market economy at the expense of the open national economy and its approved industries. And this also serves to at least attempt to address some of the potential for public unrest in areas polluted and harmed by all of this illegal mining and rare earth mineral processing.

On one level I have digressed fairly far from issues of cyber-security and information flow with this, but I offer this story here and in this series for a reason. Information and information flow are crucial to this story, as it is not local impact of it that affects China’s stability and security as a whole, as much as national and international telling of this story. Cyber-conflict and its potential stem in large part from perceived need to respond to the challenges that information can convey to yourself, and to the strengths it can offer to at least potential adversaries. That means seeing and understanding the larger, more comprehensive context that all of this information exists in – here a potentially very damaging and destabilizing story that revolves around fault lines and failures endemic to China’s government and system – fault lines and systematic structural failings it would be loath to have publically known or discussed by its citizenry.

My next posting in this series will specifically tie this story and others touched on, directly and specifically to an information management and cyber-security/cyber-conflict framework. I add here that while China faces significant and even fundamental structural challenges, it does hold significant potential as well, and I will look into at least one aspect of that too, with clean energy production.

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