Amid the ongoing instability in Myanmar exists significant concern for Chinese supply chains. Rising global metals prices, systemic risk, and potential disruptions to rare earth minerals supply chains all threaten China’s economic stability as the world’s top metals consumer. By extension, as the world’s factory, the unfettered supply chain of rare earth minerals is not only vital to China, but to the broader global economy.
A Difficult Road Ahead for Myanmar
Myanmar has struggled with military rule since gaining independence from the British in 1948. However, Myanmar’s present conflict has its foundation in the nation’s November 2020 election. The military-backed Union Solidarity and Development Party disputed election results, which saw the National League for Democracy, Myanmar’s political party backed by Nobel Peace Prize laureate Aung San Suu Kyi, win convincingly. After disputing the results, the military took control of the nation through a coup, to which a sprawling grassroots opposition movement has since left over 700 citizens dead.
In practicing realpolitik, China has seemingly pursued its own interests through its engagements with Myanmar. To Beijing, this means ensuring rare earths supply chains from Myanmar flow freely, which has been deemed critical for the country’s post-COVID economic recovery. However, this outward ambivalence towards Myanmar’s domestic conflict has led to the belief that China is supporting the coup to protect its business interests, thus instigating anti-Chinese sentiment amongst the Burmese. In response, numerous instances of attacks on Chinese factories within Myanmar and rare earths transit delays have been reported, which has called into question the security of China’s most valuable rare earths supply chain.
The Importance of Rare Earth Minerals
The term ‘rare earth minerals’ refers to 17 minerals with magnetic and conductive properties that constitute the key components in over 200 products. Rare earth minerals are not actually “rare” in the traditional sense, as there are at least an estimated 99 million tons in the Earth’s crust. However, their geographic distribution, or to be more concise, their concentration, is behind this commonly misunderstood misnomer.
Geographic concentration is a key factor as to why rare earth minerals are currently in such strong demand. Rare earth minerals are essential inputs for technologies ranging from consumer electronics to military hardware and equipment, which places a strategic value on their supply channels. With 44 million metric tons of rare earth deposits, China has a commanding lead over Russia and the US, who have 12 million metric tons and 1.4 million metric tons in reserves, respectively. Additionally, China commands more than three quarters of all rare earth mineral production, while 44% of all global reserves are located in the Bayan Obo mine district in Inner Mongolia, which accounts for 50% of total global production. Poignantly, China also processes 90% of rare earth minerals in manufacturing, which places it at the chokepoint of every link in the rare earths industry chain.
Interestingly, despite its immense reserves, China is also the world’s largest rare earths importer due to its strong industrial demand for the raw materials. Growing demand over the past decade has led China to spend considerable resources to secure its cross-border rare earths shipments from the bordering Myanmar, another highly active rare earths producing nation. Recently, this supply chain has become all the more important given that many of Myanmar’s mines are located in regions subject to extra-military junta control and have been exposed to pressure from a number of armed groups and paramilitary formations.
What Lies Beneath: Mining in Myanmar
Myanmar mined 30,000 metric tons of rare earth minerals in 2020. This makes it the world’s third largest producer of rare earth minerals, and much of the country’s supply is shipped directly to China. Most of these exports are in the form of mine concentrates and semi-processed rare earth compounds, making it China’s most important rare earths supply chain. China is also heavily reliant on tin, ore, and copper from Myanmar, and the Southeast Asian country also has rich deposits of petroleum, copper, coal, natural gas, precious, and semi-precious stones.
Globally, rare earths are highly concentrated in specific areas. In Myanmar, its rare earths supply is densely concentrated in the Kachin State, which is located on a shared border with China in the southwest Tibet and Yunnan regions. This offers a natural linkage through which most of the Sino-Burmese rare earths trade takes place. Due to the high level of rare earths trade between the two countries, any delays in production or shipping in Kachin would disproportionately impact China as the place of origin for much of its ores supply. At present, milita influence upon mining and transit delays are making these problems more concerning.
Myanmar’s rare earths trade is heavily influenced by militaristic interests. Kachin, which until recently has largely been spared from the coup’s systemic upheaval, has had to contend with longstanding political conflict of its own. The Kachin Independence Organization and its armed formation, the Kachin Independence Army, are ubiquitous in Myanmar’s rare earths mining industry, and are known to use precious gems – jade in particular – as an income stream to fund its political and military ambitions. Additionally, the New Democratic Army Kachin, a junta allied formation, is also involved in rare earth mining, and it is suspected that the associated revenues are used to support the military junta.
To this effect, the Myanmar Gems Enterprise, a military-backed mining company, has been sanctioned by the United States in an attempt to prevent its profits from directly funding Myanmar’s coup. In areas of Kachin controlled by armed groups sympathetic or loyal to the junta, there has been an increase in the illegal mining of rare earths. While the impact is largely isolated at the moment, further potential for targeted sanctions could severely hamper mining operations in the Kachin state, which could then slow the northbound flow of materials into China.
By the end of March, delays in rare earths shipments to China had already become apparent. China’s government-linked media outlet, the Global Times, reported that, while the mining and extraction of rare earth minerals had continued unabated, the logistics of transborder transit had proved problematic due to Myanmar’s instability. The platform worried that increasingly widespread outbursts of protests in the Kachin region could extend on to create significant roadblocks for truck and rail shipping.
With longstanding political instability looking increasingly likely to be here to stay, supply chain disruptions for this critical raw material look poised to grow in frequency and severity.
Global Ramifications of a Supply Chain Disruption
Due to the widespread inclusion of rare earth in industries both emerging and mature, the potential ramifications of disruption to the sector’s supply chains would be local in scope but global in scale. Greentech and other alternative energies technologies are heavily reliant on rare earths, and with many countries now committed to reducing their national carbon footprint, demand for rare earth minerals has surged. For example, motors are just one area in which electric vehicles are reliant on rare earths, which are powered by neodymium magnets. Rare earths are also critical components in electric vehicle battery packs and countless other areas. With an expected 51% increase in EV sales over 2021 in China, the world’s largest EV market, the impact of severed supply chains in this market – and countless other high-tech industries – would be felt instantly.
Additionally, while China currently accounts for 28% of all global emissions, President Xi Jinping has stated his commitment for China to become carbon neutral by 2060. To achieve this goal, industries across the economy will require rapid innovation and scaling amongst green technologies – which will only further drive demand and necessitate stable supply chains for rare earth raw materials.
China’s Forward-Looking Activity
It is difficult to predict any outcome of the coup in Myanmar, but nevertheless, China is attempting to defuse and stabilize the situation. Zhao Lijian, a Chinese Foreign Ministry spokesperson, reiterated China’s desire for a political solution within Myanmar’s constitutional and legal framework. China’s ambassador to Myanmar, Chen Hei, has publicly praised the mediation of the Association of Southeast Asian Nations (ASEAN), and the Special Envoy of the UN Secretary General. Nevertheless, China – and the world – is dependent on Myanmar’s rare earth minerals, and rising disruptions in its rare earths supply chain are beginning to raise significant questions.
This perhaps offers partial insight into China’s recent decision to limit its exports of rare earth minerals and instead hoard the inputs for domestic industrial production needs. Not only would export restrictions help hedge the risk of persistent disruptions to the Sino-Burmese rare earths supply chain, but it could also be targeted towards political leveraging and bargaining. As US-China relations escalate and potential flashpoints – no matter how unlikely – are unveiled, economic and military security considerations are taking a newfound importance. Given the immense concentration of rare earth minerals within Chinese borders and the nation’s dominance over Myanmar’s supply chains, export restrictions on the 80% of rare earth minerals that the US imports from China would simultaneously secure Chinese militaristic interests while disrupting key components within the US defence industry, as well as other key overseas industries.
Nonetheless, while the motives behind the curtain remain conjecture, mitigating the risk of disruptions in this key sector has likely been at the forefront of Beijing’s agenda. Should Myanmar’s militia-influenced rare earth mines be further sanctioned, or should protests in Kachin continue to escalate, China may soon have to look elsewhere to ensure the safety of its rare earths supply chain.