Key themes: National security, Economic security, Critical minerals, Supply chains, Critical mineral joint action plan, Indo-pacific strategy
Canada recently ordered several Chinese companies to divest from Canadian critical mineral lithium mining operations. Sinomine (Hong Kong) Rare Metals Resources Co Ltd, Chengze Lithium International Ltd, also based in Hong Kong, and Zangge Mining Investment (Chengdu) Co Ltd were ordered to divest certain assets. Relatedly, Sichuan Yahua also announced its divestiture from a Canadian lithium joint venture in Chinese media.
Moreover, Canada will soon implement a new Indo-Pacific strategy expected to promote a more clear-eyed approach to China. Recent Canadian securitization of critical minerals and our increasing willingness confront China rhetorically seem underpinned by a shift towards a mistrust of China. While this may be partially true, the broader trend of securitization within national economies has several factors beyond tension and competition with China, including the pressure to transition to a sustainable energy future and the potential to capitalize on shifting demand, such as the expected quadrupling of lithium demand over the next decade.
With regards to the recent divestiture orders, Canada’s government is saying that, considering our relationship with China and our perception of their ambitions, our relationship with the US, Canada’s own future green energy needs, and the potential opportunity to capitalize on our yet relatively underdeveloped critical minerals supply capabilities, it is in our best interest to have these Canadian natural resources owned by Canadian or American companies, rather than Chinese companies. Therefore, the action is solely an indictment of China, Chinese businesses or business practices.
That said, the divestiture orders and new Indo-Pacific strategy, along with a several rejected Chinese investment bids in recent years, signal that Canada is not as open to Chinese investors as it once was. For the better part of the last two decades, Canada was perceived as a very safe place for Chinese investment. Canada’s strong economy, robust financial system, skilled workforce, and abundant natural resources among other factors, made Canada quite attractive to Chinese investors. However, by adopting more hardline rhetoric on China and interfering with investment deals, such as these lithium divestiture orders, the blocking of Shandong’s proposed purchase of TMAC Resources or the obstruction of Xinyi Glass’s manufacturing plant in Ontario, Canada is greatly disincentivizing future Chinese investment in industrial and technology sectors.
Aside from Canada-China relations, the main factors needed to understand these divestiture orders are the economic and political relevance of critical minerals, and the widespread blending of national and economic security – of which the securitization of critical minerals is a prime example. Critical minerals are irreplaceable inputs for advanced technologies such as batteries, which will be crucial mediators between renewable power generation and electricity access, and semiconductors. As has been widely reported on, the recent semiconductor shortage has negatively affected the accessibility and price of technology products from cars to PlayStations around the world. This illustrates just one of the key roles critical minerals play in modern economies.
China controls a massive share of the supply of both critical minerals as well as semiconductors. However, the recent pain to consumers of the semiconductor shortage, contributed to by COVID-19 measures, demonstrates that the risk of a supply shock to key resources can be a consequence of factors independent from international relations. Therefore, the recent securitization of economic areas including critical minerals and semiconductors is not wholly explained by tensions with China. That said, China’s positioning, both in terms of market control and political uncertainty, has catalyzed much securitization in Canada, the US, and many other countries. Furthermore, as a close US ally, some of Canada’s approach to Chinese investment in these sensitive areas may be influence by broad US strategic objectives. This may apply particularly to the area of critical minerals as Canada entered the Joint Action Plan on Critical Minerals Collaboration and the US recently reiterated ambitions of rivaling China’s role in the critical minerals market.
While national security and economic organization have always been intertwined, the complex interdependence created by globalization over the past several decades multiplies the national security considerations relating to supply chains, energy, and technology. So, even if western relations with China remained as positive as they were in the early 2010s, the supply shocks seen over the past few years would still likely have contributed to some version of the securitization we now see in areas like critical minerals. It is important to see Canada’s changing stance on China and its treatment of Chinese investment not only as a reaction to Canada-China and US-China tensions but because of natural reprioritization and reorganization amid technological revolution and globalization. By keeping this in mind, we may remain open, albeit more cautiously, to opportunities for cooperation and genuine mutual gain with China that may emerge in the post-covid era of renewed conscience of supply chain fragility and economic security.