New Delhi: China lent $56.9 billion to 19 emerging economies for mining projects in minerals such as copper, lithium, nickel, cobalt, and rare earth elements (REEs) between 2000 and 2021, as Beijing seeks to strengthen its reserves of these transition minerals.
While the US has been trying to sign a critical minerals deal with Ukraine, China has quietly built its global reserves in these five minerals, which are key for most consumer technologies, renewable energy, and defence technologies.
Beijing has been focusing its lending on primarily Chinese-owned or partially owned companies, which have received 83 percent of official sector lending between 2000 and 2021, according to a report published last month by AidData, a research laboratory at the College of William and Mary in the US.
Transition minerals are naturally occurring substances that are ideal for use in renewable technology. Lithium, nickel, and cobalt are core components of batteries, which are used to power technologies such as electric vehicles, while copper and aluminium are used in power transmission lines.
China, accordingly, has financed forays into a number of countries in search of strengthening its hold over the aforementioned critical mineral deposits. The 19 emerging economies include Chile, Iran, Kazakhstan, the Democratic Republic of Congo (DRC), Ecuador, Indonesia, South Africa, Myanmar, and Peru, to name a few.
Chile and Peru are two of the largest producers of copper in the world, while Chile is also one of the largest lithium producers. Indonesia is one of the largest producers of nickel in the world and the DRC one of the largest cobalt producers globally. Mining projects in these countries have all received substantial financial investment from China, according to AidData.
Around 40 percent of the global processing capacity for copper is in China, for lithium, it is closer to 60 percent, for nickel, it is a little less than 40 percent, for cobalt, it is over 60 percent, and for REEs, it is over 80 percent, according to figures published by the International Energy Agency (IEA) for the 2019 calendar year.
A number of emerging economies involved in the extraction process have increasingly sent the raw minerals to China for processing. Beijing’s growing investments at the extraction stage show its strategy of participating in all stages of production.
“China uses its power of the purse to secure raw materials abroad, especially for all those minerals they lack in sufficient quantities back home. They started mining in their own territory for lithium in Tibet before moving abroad in search of larger reserves,” Sriparna Pathak, associate professor, Chinese Studies and International Relations at the O.P. Jindal Global University, explained to ThePrint.
Pathak added: “China has deployed its resources in the Democratic Republic of Congo (DRC) for mining cobalt. In Zambia, Ghana, and Zimbabwe, it has invested in critical minerals. In Chile and Peru, it has looked at copper. It deploys its vast foreign exchange reserves to gain control over these minerals.”
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Methods of Chinese funding
A key pillar of Beijing’s overseas funding includes its resource-for-infrastructure (RFI) arrangement, where Chinese lenders agree to fund infrastructure projects in the third country while receiving cash proceeds from that nation’s natural resource exports to China, notes AidData.
In 2008, China signed an RFI deal with the DRC, which saw the Export-Import Bank of China (Exim Bank) agree to roughly $6.56 billion in development funding in exchange for two Chinese companies gaining a majority stake in a joint venture mining company: Sino-Congolaise Des Mines (Sicomines SARL). China Railways Construction Company (CREC) and Sinohydro, both Chinese companies, received a 68 percent stake in the joint venture, while the DRC government remained in control of the remaining 32 percent.
The Exim Bank further provided a loan of $2.029 billion at a fixed interest rate of 6.1 percent to Sicomines for the setting up of the copper-cobalt mine in Lualaba province in the DRC. The Sicomines mine site is reported to have roughly 8.1 million metric tonnes of copper as reserves and around half a million metric tonnes of cobalt. This is roughly 10 percent of the DRC’s total copper and cobalt reserves.
Kinshasa has around eight percent of the global copper reserves and accounts for roughly 55 percent of the world’s cobalt reserves. The Exim Bank, along with loans from private Chinese companies, amounted to roughly $7.82 billion (in 2021 constant prices) between 2008 and 2013, according to AidData. While the deal was later revised to China providing $3 billion in infrastructure lending, it indicates their efforts to control a sizable portion of the supply chain from mining to refining of these transition minerals.
In Peru, Chinese official sector institutions lent around $12.3 billion of credit for the acquisition, development, and operation of the Las Bambas open-pit copper mine. The mine has been in commercial operation by a group of Chinese companies, due to a $6.96 billion loan extended by a consortium of Chinese banks, according to AidData.
All three firms that jointly own the Las Bambas mine are either Chinese firms or China-backed firms. It is one of the world’s largest mine sites.
China’s state-financed mining projects
In recent years, China has deployed a series of financing tools, including loans by its policy banks such as the Export-Import Bank of China (Exim Bank), the Agricultural Development Bank of China, and the China Development Bank (CDB), and lending by its more well-known commercial banks such as the Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and China CITIC Bank to secure mining projects across the 19 emerging markets, according to AidData.
The Exim Bank and CDB are pioneering institutions, lending almost $32 billion for projects in the aforementioned countries, while between 2018 and 2021, state-owned commercial banks accounted for roughly 74 percent of the total lending from China for transition mineral projects.
“China was adept at looking at technology in a geopolitical context. China never bought into the Western idea that trade would streamline operations and create specialisations. Beijing was very clear from the beginning that it wanted its own technology, and this stems from the domestic situation of the country. Being a Communist country, it had to build its own firewall to secure its regime,” Harsh V. Pant, Vice-President of strategic studies at the Observer Research Foundation (ORF) in New Delhi, explained to ThePrint.
According to AidData, Beijing’s willingness to back Chinese firms financially has helped it gain a foothold in overseas mining projects and aid the companies in overcoming barriers to market entry. Mining projects require liquidity—hundreds of millions to billions of dollars—for acquisition, development, and expansion of mines.
In comparison, Western companies do not have similar backing from their governments, especially with regard to concessionary lending. In 2016, American mining firm Freeport-McMoran, which had spent billions of dollars developing the Tenke-Fungurume copper and cobalt mines, as well as the Kisanfu copper and cobalt exploration project in the DRC, found itself deep in debt.
The American firm put up its controlling stake in both its mines in the DRC for sale and received bids only from China Molybdenum—a state-owned subsidiary of China Minmetals. Despite pressure in Washington D.C. to prevent the sale, the US government opted not to intervene in the sales process, according to AidData.
The Chinese firm was able to finance the $1.59 billion acquisition through syndicated loans from a number of domestic financial institutions.
“China is trying to build reliance in developing countries on its own industries for the mining of critical minerals. The focus is to ensure large-scale reliance and dependence on China when it comes to the entire production process of critical minerals,” said Pathak.
Technology as the next battle for influence
China has been preparing itself for the current race in technology for years. It viewed its own domestic challenge—the insecurities that arise from being a Communist regime—and was able to “produce an opportunity” to build its own technological competence.
“China realised early on that the battle for influence will be fought on technology, and only now the West has learnt its lesson in not giving Beijing access to high-end technologies. However, China first had to catch up with the West in terms of technology and then surpass it through the monopoly over resources,” said Pant.
He added: “They took the route to pump in money in foreign projects in the event that the West ever attempted to curtail their access to technologies… China was clear in not wanting to have any dependence on the West.”
However, its categorical approach to technology in a sense comes from the fact that the West dealt with China openly, viewing the country in a “theological sense” as a developing country, which could play a role in manufacturing, said Pant.
Meanwhile, New Delhi, which has recently taken steps with regards to its own critical minerals policies, had a very different context with regards to the production of high-technology goods. For India, it has spent most of its efforts in the last couple of decades to remove itself from the technological denial regimes imposed by the US and its allies.
“It took as a while to build ties with the US to be able to get out of these regimes. So it took our energy to first make the US look at us as a technological partner. We are now more aware of the technological race. Largely our approach has been more about cooperating with other like-minded partners to ensure that we won’t be denied high-end technology,” said Pant.
How this plays out in years to come is yet to be seen, but for India, its ties with the West is to ensure access, while for China, it is about competition.
(Edited by Radifah Kabir)
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