China's trump card: monopoly in rare earth metals

China's monopoly on rare earth metals gives it an important diplomatic advantage over other countries.

In today's modernized and global economy, having a vital natural resource is tremendously helpful. Several Middle Eastern countries have become extremely wealthy because of oil -- however, because they lack economic, military, and political power, that benefit remains largely financial.

Russia supplies nearly half of the European Union's (EU) natural gas. For some of the former Soviet Union states and satellites, it supplies almost all of it . Russia also exports oil to the EU. This dependence, combined with its military and economic power, has allowed Russia to re-establish its sphere of influence in the former Soviet Union area in Eastern Europe.

China's dominance in rare earth metals is even more absolute compared to Russia's natural gas or the Middle East's oil --- and it is increasingly using this advantage to achieve diplomatic its objectives. In fact, China controls 97 percent of world's production. For some rare earth metals, like dysprosium, it produces 99 percent of it.

Rare earth metals are important for developed countries. In an interview with MarketWatch, Bryon King, an expert on these metals, went so far as to say without them, much of the modern economy will just plain shut down.

These metals are critical to many high-tech electronic devices. They are needed for military devices like guided missiles and lasers, which means they have national security implications. Furthermore, they are essential for green technology devices like solar panels, electric cars, and wind turbines. So, as countries like the U.S. switch to green energy, they may be going from fossil fuel dependence to rare earth metal dependence.

In the 1980s, the U.S. was the leading producer of rare earth metals. However, in subsequent decades, China took control of the market. Many countries at first did not realize the strategic importance of rare earth metals. Also, for countries like the United States, production was unattractive because of environmental concerns. So when China began selling these metals at cheap prices, and also buying up mines around the world, some countries willingly let it happen.

Politicians outside of China are now alarmed about this stranglehold. Countries like the U.S. could respond by re-starting production in their own country, but it is costly, difficult, and environmentally damaging. The U.S. Government Accountability Office also said it will take 15 years to revive the industry domestically.

China has played the rare earth metals monopoly card recently: its unofficial ban on exporting rare earth metals to Japanese industries was instrumental in securing the release of its fishing boat captain who was detained when his ship collided near disputed territory between the two countries.

As China becomes increasingly assertive in the Asia Pacific region, the Indian Ocean, and with the West on issues like Tibet and the yuan currency, it will likely play the rare earth metals monopoly card again.

Email Hao Li in New York at hao.li@ibtimes.com.