- China’s dominance in raw material is increasingly becoming a strategic risk.
- For gallium and magnesium more than 90 percent of all global capacity is being produced in China. For rare earth and silicon, important raw materials in the chip supply chain and needed for any kind of electronic products, about 70 percent of global sourcing depends on China.
- These high dependencies pose a strategic risk for Europe. In case of an escalating geopolitical conflict, China can credibly threat banning or restricting raw material exports. Given the high dependencies, any quota would already be an effective and hurtful instrument to retaliate against potential EU/US sanctions.
- China has in the past demonstrated that it is willing to use such instruments. In 2010, the Chinese government restricted exports of rare earth to Japan in response to a territorial island conflict.
- In response, the European Commission published its Critical Raw Material Act in mid-March. Until 2030 no more than 65 percent of EU annual consumption for any raw material should come from a single third country. Given the high China dependencies (90 percent for magnesium, which is heavily used in light-weight products), that will be hard to achieve.
- As these measures will take time to reduce the strategic dependencies, companies need to review their supply chains to identify vulnerabilities. Companies are advised to carefully review to what extent their products or also 2nd or 3rd tier suppliers depend on such raw materials.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.