MEDIA EXTRACTS ON CHINA
THIS ISSUE OF “GOOD MORNING FROM LONDON” IS LIMITED TO COMMENT ON TWO TOPICS INSTEAD OF THE USUAL FOUR–
FIRST, CHINA AND THE NORTH SEA ROUTE (NSR).
SECOND, CHINA REDUCES GRAPHITE EXPORTS.
BOTH ARE IMPORTANT TOPICS IN WORLD AFFAIRS AND I DO NOT WANT TO OVERLOAD MY READERS. THERE ARE ONLY SO MANY HOURS IN THE DAY.
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#1 CHINA AND THE NORTHERN SEA ROUTE (NSR)
THE DIPLOMAT
The Northern Sea Route (NSR) has received special attention from both China and Russia in recent years. The melting Arctic ice offers major powers greater navigational access. This expansion not only extends the available months for using Arctic maritime routes to transport resources but also boosts the potential volume of cargo transported. A study supported by the Russian Science Foundation, employing satellite data and climate models, projected that the NSR’s transit window will expand by approximately 4 to 6.5 months by the close of the 21st century.
The NSR connects the Baltic Sea to the Bering Sea through Russia’s extensive Arctic, and is known for providing faster navigation during ice-free periods, drawing the interest of various global players. A trip from Dalian, China to Rotterdam, the Netherlands along the NSR takes 33 days as opposed to the 48 days via the Suez Canal. This explains why China and other nations are closely observing the Arctic and its potential for global shipping.
China’s growing involvement in the NSR is evidenced by its 2018 Arctic White Paper and the 14th Five Year Plan emphasising China’s dedication to polar region collaboration. China’s interest is branded as the “Polar Silk Road,” the component of the Belt and Road Initiative in the Arctic. It aims to establish new sea routes through the Arctic Ocean, tapping into the region’s potential for global trade connectivity and promoting Arctic exploration. Russia has welcomed this interest, with President Vladimir Putin saying in 2017 that “the Silk Road has reached the North” adding that Russia would combine the Northern Sea Route with Chinese projects. From 2019 – the year after China’s Arctic White Paper was released, – the number of transits of the NSR have risen from 27 in 2018 to 62 in 2020 and the tonnage shipped from 18m tons in 2018 to 30m tons in 2021
Chinese Alternative for Maritime Shipping
It is relevant that about 90 percent of Chinese products are transported by sea and China-Europe maritime trade is three times greater than air trade The NSR is seen as a viable alternative to problems arising from the traditional maritime routes like the Suez Canal or the South China Sea and the Strait of Malacca.
The Chinese strategic manoeuvre to diversify its oil and natural gas arises from “The Malacca dilemma” a term coined by then President Hu Jintao in 2003 to signify China’s vulnerability to a naval blockade due to limited alternative routes and the potential for control by external powers, particularly the United States. Overreliance on the Strait of Malacca presents a major obstacle for China’s trade networks due to the narrowness of the strait, coupled with increasing piracy activity. Hence China’s growing focus on the NSR
China is well aware of looming issues. The Suez Canal is experiencing growing congestion year after year, and the South China Sea is becoming more appealing for pirate attacks, casting uncertainty on the stability of navigation and the import and export of goods.
China’s Role in Enhancing Arctic Connectivity and Trade
The NSR not only bypasses the obstacles of the Suez Canal but also provides a safer passage, effectively sidestepping the problems found in the South China Sea. Also, it offers China a faster route to transport goods to and from Europe. The NSR is especially attractive for shipping goods between China and Russia. Annual trade between Russia and China has increased since 2012 from less than $90billion to more than $190billion in 2021.
Efforts to further develop the NSR are underway. China Communications Construction and China Railway Construction have been discussing the extraction of raw materials in Russia’s Komi Republic including the potential construction of a new railroad and a deep-water port for loading ships for transportation along the NSR.
China and other partners also aim to construct a fiber optic cable spanning approximately 10,500 kms along the Arctic Circle. This project would not only improve connectivity but also boost navigation safety in the region by increasing data transmission. It is reported that Huawei is helping build part of the infrastructure to make communications faster and more efficient between ships, and between ships and the coast.
In October 2023, at the third Belt and Road Forum in Beijing, Putin said that “starting next year navigation for ice class cargo ships speech throughout the NSR “will become year round.” If true, this would increase China’s interest in this maritime route, likely resulting in even more aid to the construction of high-class or nuclear icebreakers in order to reach this goal.
The role of China in the development of the NSR is connected to its ambitions to diversify maritime shipping routes; its need for new energy resources (while competing with the West); and the quest for faster and safer navigation. It underlines yet again China’s growing significance in the evolution of world trade and international politics.
GRAHAM PERRY COMMENTS
TWO OBVIOUS TRUISMS; THE WORLD IS ALWAYS CHANGING AND THE WORLD IS ALWAYS GETTING SMALLER.
IN RECENT MONTHS THE MEDIA HAS INCREASINGLY FOCUSED – NOT ONLY ON THE MOON AND SPACE – BUT ALSO THE ARCTIC. A COMBINATION OF CLIMATE CHANGE AND SCIENTIFIC BREAKTHROUGHS HAS BROUGHT THE ARCTIC FIRMLY INTO THE AREA OF INTERNATIONAL POLITICS. BEAR IN MIND THAT THE NORTHERN SEA ROUTE WHICH CONNECTS THE BALTIC SEA TO THE BERING SRAIT THROUGH RUSSIA’S ARCTIC WILL LEAD TO FASTER NAVIGATION DURING THE INCREASINGLY LONGER ICE FREE PERIODS. THE SUEZ CANAL BECOMES A LESS ATTRACTIVE OPTION TO VESSELS TRAVELLING FROM CHINA TO NOTHERN EUROPE.
THESE DEVELOPMENTS HAVE SIGNIFICANT GEO-POLITICAL CONSEQUENCES. THE DIVERSIFICATION OF SHIPPING ROUTES COMES AT A TIME WHEN CHINA – THROUGH ITS BELT AND ROAD INITIATIVE – IS INCREASING THE NUMBER OF COUNTRIES WITH WHOM IT CONDUCTS INTERNATIONAL TRADE AND REDUCING THE TIME IT TAKES TO MOVE GOODS AROUND THE WORLD. THE REFERENCE TO HUAWEI’S INVOLVEMENT IN CONSTRUCTING THE INFRASTRUCTURE TO IMPROVE COMMUNICATIONS BETWEEN SHIPS AT SEA AND BETWEEN SHIPS AND THE COAST IS VERY SIGNIFICANT.
#2 CHINA REDUCES GRAPHITE EXPORTS
Electric vehicle makers are bracing for Chinese export curbs on graphite, a key material in EV batteries, to begin on Friday.
The restrictions require a license for export of some synthetic and natural graphite, of which China is by far the world’s biggest supplier. The move is widely seen as a response to U.S. controls on shipments of cutting-edge chips and chip equipment to China, as Washington attempts to curtail Beijing’s efforts to develop its own advanced semiconductor industry.
Much of the impact will depend on how Beijing implements the restrictions, but companies and governments alike are not waiting to find out. From Washington to Tokyo to Seoul, efforts are underway to cut dependence on China for graphite and other “green energy” materials.
Here are five things to know about China’s graphite curbs.
What is Graphite and What is it Used For?
Graphite is a form of the element carbon with a wide range of industrial applications, from pencil cores to lubricants. It has gained geopolitical importance as a key ingredient in EV batteries. The anode, or negatively charged portion, of a typical EV battery, is usually made from graphite. The cathode, on the positive side, is made of other materials, such as lithium, nickel or cobalt.
China churns out most of the world’s graphite and nearly all the high-quality graphite used in EV materials. This dominant position was built up as companies took advantage of China’s relatively cheap labor and abundant resource deposits to obtain battery materials. China’s grip on supply only started to come under scrutiny a few years ago, as electric vehicle production accelerated. By that time, countries like the U.S., Japan and South Korea had already become heavily dependent on China for graphite.
How and Why is China Restricting Exports of Graphite Products?
Starting Dec. 1, companies that want to export certain graphite products will be required to apply for a permit from Chinese authorities. Materials that fall under the new rules include high-purity, high-hardness synthetic graphite and some natural graphite products.
Beijing says the restrictions are aimed at protecting national security.
Having a near stranglehold on the world’s supply of industrial-use graphite, however, also gives China leverage in its ongoing trade tensions with the U.S., similar to how America is able to use its control of certain cutting-edge chip technologies.
China announced the graphite curbs in late October, just days after the administration of U.S. President Joe Biden ramped up export controls on advanced artificial intelligence technology. Earlier this year, Beijing tightened exports of products related to gallium and germanium, a move widely seen as retribution for curbs imposed by the U.S. and its allies on advanced semiconductor shipments to China.
How have Governments Responded to China’s Move?
The U.S. has already defined graphite as a critical mineral, along with gallium and cobalt, which are also used in semiconductors and EV batteries, and is trying to support projects aimed at fostering domestic supplies.
South Korea, a major player in the global EV battery market, has been in talks with China through various diplomatic channels to smooth the import of graphite since the announcement in October. The government is also supporting companies in signing long-term deals with graphite suppliers in countries such as Tanzania, Mozambique and Madagascar. For example, Trade Minister Ahn Duk-Geun visited Tanzania on Nov. 8 to discuss how to cooperate over mining graphite in the African nation.
In November, Japan and China agreed to set up a new framework to discuss export controls on critical minerals and semiconductor materials, ahead of a summit between the two countries’ leaders. Japan has been slower than other nations to embrace electric vehicles domestically, though it has a number of important battery suppliers, including Panasonic.
What Does This Mean for Battery Makers and the Global Battery Market?
It depends on how the licensing process is implemented. In a worst-case scenario, in which Beijing halts all exports, battery factories would likely be shuttered in Japan and South Korea, prices of batteries could go up and the adoption of EVs in markets around the world could be hit.
“It could have a major impact on the production of automakers, including Chinese makers who import some of their anodes from overseas,” said Mitsutaka Fujita, a researcher at Tokyo-based Techno Systems Research.
One risk for China — and a reason it might not take a hard-line approach — is that enforcing the curbs too strictly could hurt its own companies.
An industry source in Japan said he doubted Beijing would keep its hawkish position as that would also “damage” the mineral market in China. Battery makers will in future likely source their minerals from nations like Australia, India, Brazil and Vietnam, or countries in Africa, which “will jeopardize one of the Chinese mineral industry’s strengths in the long run,” he added.
What are Companies Doing To Avoid Potential Supply Chain Disruption?
The consensus is that not much can be done in the short term given China’s grip on the global supply of both natural and synthetic graphite.
Japanese companies have been trying to stockpile reserves of the material, according to a battery industry source, and are also working to move sourcing to countries outside China. Some of these efforts began before the curbs were announced. Panasonic Energy, for example, partnered with a Canadian company in 2022 to consider purchasing battery-grade graphite from North America. Japan-based battery material trading house Hanwa has also struck partnerships with mining and processing companies in Australia and other regions.
Companies in South Korea, meanwhile, are trying to source artificial graphite domestically. For instance, Posco Future M, a battery materials company, is getting needle coke, a key element for artificial graphite, from a subsidiary which makes it from coal tar.
How the market will react to the restrictions is difficult to predict as some demand for graphite products has been weakening amid concerns over economic slowdown. However, Tomono Junichi at Hanwa said, “It will likely be more difficult for prices to come down in the future.”
GRAHAM PERRY COMMENTS;
IT STARTED WITH TRUMP. HE BELIEVED THAT BRINGING CHINA INTO THE WORLD TRADE ORGANISATION WOULD DILUTE CHINA’S BASIC COMMITMENT TO BUILD SOCIALISM WITH CHINESE CHARACTERISTICS. HE BELIEVED, ALONG WITH OTHER WESTERN LEADERS, THAT PROSPERITY AND ECONOMIC GROWTH WOULD MODERATE CHINA’S POLITICAL GOALS AND LEAVE THE US ALONE AS THE WORLD’S ONLY ECONOMUC SUPERPPOWER. TRUMP WAS WRONG. CHINA’S PROGRESS WAS NOT ACCOMPANIED BY A DILUTION OF ITS DETERMINATION TO REMAIN LOYAL TO ITS 1949 FOUNDING GOALS. CHINA GREW STRONGER NOT WEAKER AND WASHINGTON FELT THE GROWING STRENGTH OF BEIJING.
TRUMP PENALISED CHINA WITH TARIFFS AND EVEN MORE TARIFFS IN AN EFFORT TO RESTRAIN CHINA’S PROGRESS. BIDEN FOLLOWED TRUMP AND REMAINED COMMITTED TO THE POLICY OF ARRESTING CHINA’S PROGRESS. CHINA HAS – EVENTUALLY – RESPONDED AND IMPOSED ITS OWN FORM OF TARIFFS AND IT IN THIS CONTEXT THAT A BAN ON GRAPHITE EXPORTS WILL COME INTO FORCE – DESIGNED TO HAMPER THE WEST’S DEVELOPMENT OF ELECTRIC VEHICLES.
JUST TIT-FOR-TAT? NO, IT HAS GREATER CONSEQUENCES. THE WEST HOPES TO SQUEEZE CHINA INTO SUBMISSION. CHINA KNOWS THAT AND IS BRACED FOR ONGOING CONFRONTATION.
