Chairman’s Message

There are strong interests in the need to enhance the resilience of the supply chains of critical minerals these days. This point was clearly emphasized in both the G7 and G20 Leaders’ Declaration. A high-level international conference on critical minerals to which many ministers participated has just been hosted by IEA, on September 28.
In light of such strong global interests, and for this month’s message, I would like to re-visit the 2010 China’s embargo of exports of rare earth elements (a.k.a. rare earths) to Japan.

<Main Points>

1. What happened in 2010? How did China’s export embargo of rare earths to Japan begin?

Offshore the islands of Senkaku in the South West seas of Japan, on September 7, 2010, a Chinese fishing boat intentionally collided with two Japanese coast guard vessels. Naturally, the Coast Guard arrested the captain of the Chinese fishing boat.
The Chinese Government responded fiercely by stopping the ongoing negotiations to increase air routes between the two countries and by reducing the size of Chinese tourist groups to Japan. The most impactful response was to stop the export of rare earths to Japan.
The embargo threw the Japanese industries into panic, especially the auto industry, as they were put on the verge of suspending their operations primarily because rare earths are indispensable in the production of magnets. Back then, Japan was nearly 90% dependent on China’s rare earths supplies.
Although the incident was eventually resolved with the release of the captain of the fishing boat, it is worth noting that prices for rare earths soared ten times in the year following the incident.

2. The five-pillar response package by the Japanese Government

Alarmed by the vulnerability of its supply chain of rare earths, the Japanese Government put together a package of comprehensive measures to enhance the resilience of its supply chain. At the time, I happened to be in the position to develop the package at METI of the Japanese Government. Reflecting the strong sense of urgency of the Japanese Government, the speed and the scale for developing a package of comprehensive measures were unprecedented. For example, a supplemental budget of 100 billion yen (equivalent back then to about 1.2 billion US dollars) was quickly set aside in October 2010. The package had five main pillars.
The first pillar was to develop the technologies and support investment in equipment to reduce the use of rare earths.
The second pillar was to develop technologies to use alternative materials.
The third pillar was to promote the recycling of rare earths. It included supporting investment in recycling facilities as well as supporting the development of more efficient recycling technologies.
The fourth pillar was to develop mines and acquire interests in rare earths outside of China. The capacity to provide risk money for such activities was significantly strengthened.
The fifth pillar was to start stockpiling rare earths in addition to the policy framework to ensure reserves of critical minerals.

3. The results: Meaningful effects but with limits.

The Japanese dependence on Chinese rare earths dropped from 90%, at the time of the incident, to 60% today. The consumption of rare earths in Japan is now half the level of what it was then. Despite a series of diplomatic problems with China since the incident, these progresses arguably have protected Japan from being the target of another embargo.
A dependence of 60 % for Japan is still high, but China’s dominance in the global supply of rare earths is even higher.
The challenge is not limited to the issue of rare earths, but it extends to other critical minerals for which China dominates the global supply. This summer, for example, China strengthened its export control of the critical minerals of gallium and germanium.

4. Three lessons to be learned: Be Vigilant, Take Necessary Measures, Act Globally

What have we learned from the incident in 2010?
The first lesson is to be vigilant. At the time, Japan was surprised by its vulnerability in the supply of rare earths while, on the other hand, China had a very accurate understanding of the leverage it could exercise. It is important to analyze the vulnerability of the whole supply chains and to take measures to address any weaknesses in advance. China has demonstrated that it has both the capability and the will to take advantage of its supply dominance. The recent Chinese action on gallium and germanium reconfirms this point.
The second lesson is about taking the necessary measures. The five pillars of the response package by Japan remain appropriate for the critical minerals’ challenges we face today. Thanks to the measures that were put into place, Japan lowered its consumption and reduced its dependence on Chinese rare earths and Japan has not had to panic so far despite the occasional disputes with China.
The third lesson is that we must act globally because China continues to dominate the global supply of rare earths and of other critical minerals. In fact, China dominates the supply of many of the critical minerals that are important and becoming indispensable as we accelerate our energy transition. Efforts by Japan alone would only have a limited global impact and that’s why there must be concerted international efforts to reduce the dependence on Chinese supply of rare earths and critical minerals.

History may not repeat itself, but it would be unwise not to learn from it. As we are facing a global challenge of heavy dependence on Chinese inputs, we must respond globally. This will require the world to learn from the experience of 2010 and the world should hopefully deter or at least be better prepared for another economic coercion in the future.

I would like to conclude this message by introducing the 12th IEEJ Webinar for the World on November 7th. In the 12th IEEJ Webinar for the World, IEEJ will present a quick look of “IEEJ Outlook 2024”, IEEJ’s newest global energy outlook for 2050, which IEEJ will release on October 20th. The “IEEJ Outlook 2024”, which is a “forecast based outlook”, presents very different energy perspectives for the future than those presented by “back-cast based outlooks”. Please feel free to click the hyperlink below to register.

The 12th IEEJ Webinar for the World
1.Date/Time: Nov. 7th 21:00-21:45PM JST/12:00-12:45PM GMT/07:00-07:45AM EST
2. Webinar App.：Zoom
3. Agenda：IEEJ outlook 2024
4. Registration: https://us02web.zoom.us/webinar/register/WN_IAIPCvadRcq3GIEnTEha2w