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Rare-Earth Market: China monopoly?

Rare-Earth Market: China monopoly?

Most people have no idea what’s in an iPhone. Yttrium and praseodymium don’t exactly roll off the tongue, but they’re part of what make smartphones so small, powerful, and bright. These exotic materials are among the planet’s 17 rare-earth elements, and surprisingly, the soft, silvery metals are not at all rare. But they’re found in tiny concentrations, all mixed together, and usually embedded in hard rock, which makes them difficult — and messy — to isolate. In China, which mines 89 percent of global output, toxic wastes from rare-earth facilities have poisoned water, ruined farmlands, and made people sick.

 

 

Beyond high-tech gadgets, rare earths play a critical role in national defense, enabling radar systems and guided missiles. Ironically, they also power clean-energy technologies, such as wind turbines and electric cars. This year, global consumption is expected to be about 155,000 tons, far more than the 45,000 tons used 25 years ago. Demand will only grow — likely at an accelerated pace — as the world tries to rein in climate change.

 

 

At the moment, only China can satisfy that hunger. Yet in 2010, Beijing cut rare-earth exports by 40 percent — possibly to boost its high-tech sector — and cut off supplies to Japan over a territorial dispute. Its muscle flexing caused prices to soar, sparking new exploration for rare-earth deposits around the world. A boom in illegal mining in China has since driven prices back down, making it extremely difficult for non-Chinese mines to stay open or get off the ground. Nevertheless, the rest of the world hasn’t given up: There are currently 50 deposits at an advanced stage of development (see map below) that could someday challenge China’s dominance.

 

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Source:This article originally appeared in the July/August issue of  FP magazine.

China- Pakistan Energy projects reaching...

China- Pakistan Energy projects reaching fruition

The China- Pakistan Economic Corridor (CPEC) is now gaining momentum with the completion of phase 1 of a 300-megawatt solar photovoltaic power plant. Financed by the Export Import Bank of China and built by Chinese energy conglomerate Zonergy Co, has been connected to the grid in the Punjab Province of Pakistan at the Quaid-e-Azam Solar Park in Bahawalpur. A major milestone in the economic cooperation between China and Pakistan: this is the first phase of the 900MW plant that is to be the world's largest single photovoltaic power station. When completed (est. late 2016) the solar power station, will save 394,000 tons of standard coal and reduce 826,000 tons of carbon dioxide emissions every year.

 

 

The CPEC, a 3,000-km network of roads, railways and pipelines linking Kashgar in northwest China's Xinjiang Uygur Autonomous Region and southwest Pakistan's Gwadar Port, is also a major project of the "Belt and Road" initiative. Pakistani officials predict that the project will result in the creation of upwards of 700,000 direct jobs between 2015–2030, and add 2 to 2.5 percentage points to the country's annual economic growth. In addition to the Zonergy project, a number of new energy projects are being currently constructed by Chinese companies. In total over 10,400MW of energy generating capacity is to be developed between 2018 and 2020 as part of the corridor's fast-tracked "Early Harvest" projects in conjunction with the Bahawalpur PV plant.

 

 

The 1.65-billion USD Karot hydropower plant, the first investment project of the Silk Road Fund, is being developed by the China Three Gorges Corporation. Construction of the 720 MW project has begun and is expected to be put into operation in 2020.

 

 

The Port Qasim coal-fired power plant, is being constructed by Powerchina Resources Limited. The 2.085-billion USD project is due to be operational by the end of 2017.

 

 

SK Hydro Consortium is constructing the 870 MW Suki Kinari Hydropower Project in the Kaghan Valley with financing by China's EXIM bank.

 

 

The Jhimpir Wind Power Plant, built by the Turkish company Zorlu Enerji has already begun to sell 56.4 MW of electricity to the government of Pakistan, though under CPEC, another 250MW of electricity are to be produced by the Chinese-Pakistan consortium United Energy Pakistan.

 

 

Back to Coal

Despite several renewable energy projects, the bulk of new energy generation capacity under CPEC will be coal-based plants, with $5.8 billion worth of coal power projects expected to be completed by early 2019 as part of the CPEC's "Early Harvest" projects.

 

China`s Agricultural Sector: changing...

China`s Agricultural Sector: changing realities.

As China’s agricultural sector struggles to keep up with the country’s growth in demand, its ability to meet the agricultural demands of its population will usher in a new era off opportunities for agricultural companies.

 

 

China’s struggle to consistently secure adequate food supplies of a sufficient quality has resulted in its agricultural sector being placed under increasing pressure. Since February 2014 the State Council has suggested that the country will no longer aim to match demand for grain through domestic production alone. These are the first public signs that Beijing is coming to terms with the realities facing China’s agricultural sector.

 

 

The situation

If China were self-sufficient with regard to agricultural products, it would have to feed 20% of the world’s population with only 10% of the world’s arable land and 6% of global water resources. In the past, this situation was manageable due to the fact that Chinese citizens generally depended on vegetables and grains for energy with only small portions of meat for flavour. Arguably, these dietary preferences arose as a consequence of many not possessing the wealth to buy more expensive food products, as many can today.

 

 

However, China’s meat and calorie intakes have kept pace with the country’s GDP. In 1980, for example, China’s average level of protein consumption was a mere 12% of most developed countries. By 2009, China’s protein consumption had risen to 56% of the above sample’s average. China’s large population and the apparent remaining growth in China’s appetite illustrate how much food will be needed to meet future demand.

 

 

One of Beijing’s responses to China’s lack of food security was to set a 95% ‘self-sufficiency’ target on key grain products—corn, rice and wheat—to shape the way land and water resources were prioritised and insulate the country from fluctuations in global grain prices. However the production of meat is more land and water intensive - putting extra pressure on already strained resources. A pound of beef requires a staggering 6,810 litres of water, pork 2,180 litres, soybeans 818 litres, potatoes 450 litres, corn 409 litres and apples 70 litres.

 

 

The Organisation for Economic Cooperation and Development (OECD) estimates that 70% of China’s arable land is low-yielding, and erosion, salinization and acidification are leading to a further reduction in the quality of China’s soil. Further, these estimates do not take into account the effect of pollution on China’s arable soil. Some analysts say between 8-20% of China’s arable land is contaminated by heavy metals.

 

 

Interestingly though, this ‘self-sufficiency’ target has been abandoned for a more open policy according to guidelines released by the State Council. Analysts have proposed that land and water-intensive products, like beef, offer higher profit margins than vegetables, fruits and grains. Beijing may be attempting to ameliorate China’s high inequality by allowing farmers to choose to farm more profitable produce. However, this policy alone will be insufficient to overhaul China’s agricultural sector.

 

 

Unsurprisingly, China’s growing middle class is demanding the quality and safety assurances associated with imported food and beverages. The apprehension around the quality of domestically-produced powdered baby milk, in particular, has had profound effects around the world. Supermarket stores in Hong Kong, Australia, New Zealand and even as far as the UK have implemented policies aimed at rationing baby formula due to a surge in demand from China.

 

 

Regardless of whether Beijing abandons its ‘self-sufficiency’ targets, opportunities for investors lie in the Middle Kingdom’s future nutritional needs. The Chinese market’s sustained growth will result in an increase in demand for a wide range of food commodities – foreign intervention and innovation will help meet this demand.

 

 

Outlook

If President Xi Jinping follows through on his commitment to double China’s GDP per capita by 2020, demand for the more expensive categories of food, such as animal protein, will rise the fastest and will be met via an increase in imports.

 

 

The OECD and Food and Agriculture Organisation (FAO) have estimated that by 2022, China’s consumption of food commodities will increase considerably across all food classes. Possibly as a result of China’s struggle with tainted milk, the dairy category holds one of the largest gaps between domestic production and consumption.

 

 

The solutions

There is little doubt that Beijing faces a challenge in solving the country’s dramatic mismatch between supply and demand of food products. While many propose that it is inconceivable for China to achieve food security due to its scarcity of water and land resources, Beijing can reduce its dependence on imports in the long term through the implementation of strategic policies.

 

 

Remnants of Maoist collectivism, for example, remain present in China’s rural land policies and reduce motivation to increase agricultural production. Providing farmers the opportunity to own, sell and borrow against land to expand business opportunities and profits may solve some of China’s food woes. Allowing for consolidation could create an environment that makes unprofitable enterprises financially unsustainable and reward those that are profitable. The economy of scale achieved through the consolidation of farms will likely achieve higher production volume at a lower unit cost (as per developed nations in the 50`s and 60`s).

 

 

Since 1997, an estimated 8.2 million hectares of arable land, roughly the area of Austria, has been lost to property developers catering to a growing urban population. While increasing the size of China’s urban population is an important step towards shifting China to a consumption-driven economy, this process has been administered in a haphazard fashion, which has jeopardised the country’s limited fertile land. A policy that preserves the most fertile land while using infertile land for infrastructure could provide for greater efficiency and productivity in the agricultural sector. China’s urbanisation and property development also presents an opportunity to increase productivity in the agricultural sector.

 

 

Urbanisation has resulted in roughly 25 million Chinese farmers becoming defacto urban residents every year. According to a report by the Ministry of Agriculture, only 33% of China’s corn and 69% of its rice are mechanically harvested every year. The report also stated that China performs 72% of its post-harvest processing tasks, such as sorting and packaging, by hand. The opportunity for the mechanisation of the agricultural sector is evident. Mechanisation may, however, result in unforeseen consequences related to unemployment in China’s labour market, so policymakers and the business community would benefit from a coordinated approach to solving challenges in the agricultural sector.

 

 

Even if new policies could maximise the amount of arable land, China will continue to suffer from its unproductive use of land. Advanced agricultural techniques and technologies for fertilisation and irrigation, for example, could help with increasing productivity. Gradually opening up the agricultural sector to foreign investment, which the central government currently forbids, is a potentially effective strategy to transfer such techniques and technologies. Unfortunately, Beijing may not have the luxury of time if it wants to reduce its reliance on imports.

 

 

Beijing’s ‘Going Out’ policy, through which the central government aids firms, private and state-owned, to make acquisitions and investments abroad with the intention of securing physical assets and the associated intellectual property, could complement the reform of the agricultural sector. From 2010 to 2013, Chinese food and beverage companies made over USD 9 billion worth of deals overseas according to the National Australia Bank. Deals such as Shuanghui’s acquisition of Smithfield, the world’s largest pork producer and processor, in May 2013 and COFCO’s March 2014 acquisition of majority stakes in Noble Group’s agribusiness unit and Nidera stand out, but there are countless examples from around the world. With China already having established good relationships in Africa, Australasia and South America, where some of the most fertile farmlands in the world exist, the opportunity for increased OFDI in agriculture is certainly available.

 

 

Genetically modified (GM) food may also provide a partial solution to China’s food supply woes. GM crops have the potential to overcome many of the challenges of agriculture in China, such as low-yielding arable land and decreasing soil quality. Furthermore, the benefits of lower costs will also aid in keeping inflation in check. However, GM food is a sensitive topic in China—the public remains cautious as to whether the government has fully addressed the potential risks. Nevertheless, the Ministry of Agriculture has taken the lead in publicly declaring the safety of GM food and is slowly pushing domestic production ahead. Currently 17 GM products from five plant species are sold on the domestic market: soya beans, corn, oilseed rape, cotton and tomatoes. The only GM crops approved for domestic commercial production are cotton and papaya.

 

 

Lastly, firms can mollify China’s food safety fears by exporting from their home country or by producing strategically within China. Tyson Foods, one of the world’s largest processors and marketers of chicken, has shifted from its conventional business model of sourcing from independent chicken farmers and has built its own network of farms in China, providing direct oversight over the production process. In 2010, Tyson did not have any farms in China; today, they have 20, and they plan to own and operate 90 by 2015.

 

 

Business potential

Not unique to China, numerous countries face the prospect of having to rely increasingly on importing food to meet domestic demand. What magnifies China’s challenges is the size of its population, which has the potential to create shocks on global markets. If China cannot meet demand with domestic supply, global prices of certain food commodities will undoubtedly continue to rise. Should prices rise too much, affordability will become a crucial issue around the world. While farmers may benefit the most from this situation, worldwide consumers will be on the receiving end. China’s challenge, to a certain extent, will become the world’s challenge.

 

 

China’s growth in domestic food production in the last thirty years is an astonishing feat, yet the country’s deteriorating quality and dwindling availability of natural resources mean that this growth is still not adequate. Pollution must be minimised. Arable land must not be sacrificed for urban sprawl. Land policies should reward profitable agricultural enterprises. Together, these actions could alleviate pressure on China’s agricultural sector.

 

 

Companies able to navigate China’s shifting agricultural landscape will be primed to benefit from this key market. China’s agricultural players desire advanced labour-saving technology and will undertake joint ventures to attain it. Agricultural exporters around the global will benefit from increasing levels of demand for agricultural commodities and increasing flows of capital from China.

 

 

Map of new proposed Coal power plants...

Map of new proposed Coal power plants 2012

To maintain its economic growth and provide for its massive population, China must reconcile two powerful, converging trends: energy demand and resource scarcity. Below is a graphic of Global proposed new power plants as of 2013

 

 

 

China-Kazakhstan.

China-Kazakhstan.

China and Kazakhstan share a vast border of 1,700 km in the North Western province of Xinjiang. As with each of the post-Soviet republics on its western border, they have had border disputes dating to the collapse of the Soviet Union in 1990. A 1998 treaty signed between the two countries ended border demarcation issues by resolving disputed areas near the Baimurz pass and the Sary-Charndy River. To help conclude negotiations, China offered to invest in one of Kazakhstan’s biggest oil fields, construct a 3,000 km pipeline connecting the two republics, and establish a 15-year program for joint economic cooperation.

Since then, Kazakhstan has become a strategic ally in securing China’s long-term interests in the post-Soviet region. Kazakhstan’s oil, natural gas and minerals reduce China’s excessive reliance on imported oil from the Middle East. Furthermore, diplomatic relations with Kazakhstan play a key role in combating Uighur nationalism in Xinjiang province – cultural ties between the Kazakh people and the Uighurs (a Turkic ethnic group) have raised concerns in China of a potential separatist movement. While cooperation with Kazakhstan affords China a buffer zone between it and Russia, an alliance with China also helps Kazakhstan balance the heavy geopolitical influence of its Northern neighbor.

 

The following is a time line of mutual development projects and agreements:

 

  • The People’s Republic of China and Kazakhstan first formed diplomatic relations on January 3, 1992. Since then, both countries have kept close ties and solved border disputes.

 

  • In 2001, China and Kazakhstan were co-founders of the Shanghai Cooperation Organisation (previously Shanghai Five, 1996), along with Kyrgyzstan, Russia, Tajikistan and Uzbekistan.

 

  • In 2005, China and Kazakhstan established a strategic partnership. Bilateral cooperation has expanded to trade, energy, science and technology, culture and even education.

 

  • In 2007, Kazakh president Nursultan Nazarbayev announced that further strengthening ties with China is one of Kazakhstan’s most important foreign policy initiatives in upcoming years.

 

  • In 2008, both Nursultan Nazarbayev and Wen Jiabao paid visits to China and Kazakhstan respectively. Agreements were made to expand cooperation beyond extractive industries.

 

  • KazStroService completed the second leg of the Kazakhstan-China oil pipeline, between Kenkiyak and Kumkol, on July 1, 2009. The pipeline is China’s first direct method of oil importation from Central Asia and has a capacity of 10 million tons per year. Construction of Line C of the pipeline is scheduled to begin this year, and will begin to supply China with natural gas by January 2014.

 

  • As of 2011, both countries have cooperated within the UN and SCO, and cemented bilateral agreements through documents such as the Good-Neighborly Treaty of Friendship and Cooperation, the China-Kazakhstan Cooperation Strategy for the 21st Century and the Blueprint for China-Kazakhstan Economic Cooperation and Development.

 

  • China and Kazakhstan will jointly build a 1,050 km long, high-speed railway connecting Astana and Almaty by 2015.  The railway will run at a maximum speed of 350 km/hour and will service up to 5 million passengers annually.

 

  • China and Kazakhstan built the first trans-border, international free trade center in Eurasia in 2011. The center, which lies on the border of China and Kazakhstan in Horgos (Xinjiang province), was inagurated along with a railway connecting Horgos – Ah Teng Corey.

 

  • Kazakhstan extradited Arshidin Israil, a Chinese citizen of Uighur ethnicity, to China on May 30, 2011. The abolition of Israil’s refugee mandate upheld the Kazakh-Chinese extradition agreement of 1996 and helped solidify bilateral relations between the countries. Israil was wanted by Interpol on terror charges; China has promised that he will not face capital punishment.

 

  • Kazakhstan has begun supplying China with electric batteries worth around $30 million USD annually. In April of 2012, Kainar AKB supplied a first shipment of around 1 million batteries to FengFan Co. Ltd. Kainar AKB is the largest battery manufactuer in Central Asia – its products are regularly used in automobiles, as well as agricultural and military equipment.

 

  • The Development Bank of Kazakhstan (DBK) and China Eximbank agreed to invest $500 million together on energy cooperation, beginning in June 2011. The announcement followed an individual loan agreement of $1.5 billion in October of 2009.

 

  • From a $5 billion credit line for energy cooperation, China's Export-Import Bank agreed on a $1 billion construction plan for the Atyrau oil refinery, a major hub for the massive offshore Kashagan deposit now under development. This falls into the profile of Kazakhstan's program to modernize the country's three oil refineries at a cost of up to $4 billion. Chinese companies already produce 20% of all the oil produced in Kazakhstan.

 

  • 2011, Kazakhmys PLC signed a memorandum of understanding with the China Development Bank Corp. to secure a US$1.5 billion loan facility to develop a copper project at Aktogay in Kazakhstan. Further negotiations will be undertaken to move the MOU to a full loan agreement by the end of 2011, the company said in a press release. The loan will be in addition to the existing China Development Bank's US$2.7 billion loan facility, which is being used for the development of a major copper project at Bozshakol and a series of mid-sized projects.

 

Bi-lateral relations and trade between these two countries will only increase over the next few years, dominated by the energy sector which already has seen 7 billion in loans from China for various projects. Whilst there is little cultural connection with China (Kazakhstan's people have long felt a deep connection to Russia, in language, culture and lifestyle) the investments speak for themselves and provide Kazakhstan with access to deeper political ties to a world power. However in the minds of ordinary Kazaks there is a fear of loosing their identity and culture to their neighbor.

 

 

We believe this relationship truly represents the much used ‘win win’ nature of Chinese investments in emerging countries. All that remains if for the two countries to agree on the nationality of their Weightlifters.

 

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