Aggressive economic policy
China is grabbing the world’s lithium deposits – and Germany has a problem
Chinese women workers in a lithium battery factory (archive image)
© AFP
The light metal lithium is needed for mobile phones and electric cars, and demand is increasing rapidly. The problem: Germany and Europe are dependent on the supplier China, which secures deposits worldwide. This poses enormous security risks.
China is driving a global campaign to secure lithium – with great risks for Germany and Europe. With the boom in electric cars and the rapidly increasing need for batteries, there is a global race for the light metal that is indispensable for the future of e-mobility. Chinese companies are investing billions in countries in Latin America and Africa to secure deposits. According to experts, China could control around a third of the world’s lithium supply by 2025.
State and party leader Xi Jinping launched the offensive three years ago: “We have to increase the dependence of international supply chains on China and create effective countermeasures and deterrents against foreigners who want to artificially interrupt supplies to China.”
German industry must diversify more
In view of the aggressive approach, the Kiel economics professor Tobias Heidland calls for greater diversification in German industry. “The dependence on China for lithium is a major risk for German companies,” says the director of the International Development Research Center at the IfW economic research institute. “Should major tensions arise, they could lose access to crucial intermediates.”
In a China speech at the end of March, EU Commission President Ursula von der Leyen also warned against being overly dependent on the People’s Republic for raw materials – especially in the event of political disputes with Beijing. After all, the EU gets 97 percent of its lithium from China. “The batteries that power our electric cars will increase the demand for lithium 17-fold by 2050,” von der Leyen said.
A competitive advantage of Chinese investments in countries in South America and Africa is that they usually place lower demands on environmental and human rights standards than, for example, European companies. “Governments know that by working with Chinese companies they don’t get the same level of quality – but it also gives them fewer headaches, fewer regulations, fewer talks about environmental impact and fewer complaints from NGOs,” said Ryan Berg of the US center for Strategic and International Studies of the journal “Foreign Policy”.
Latin and Central America does not want to repeat mistakes
The countries in the south depend on foreign investments. However, they do not want to repeat the mistakes of earlier commodity booms and give up large parts of the value chain. Mexico’s President Andrés Manuel López Obrador and Bolivian President Luis Arce suggested the establishment of a lithium cartel modeled on OPEC. “We should be united and sovereign in the market and call for prices that benefit our economies,” Arce said.
Economist Heidland sees opportunities for German companies particularly in countries that want to pay attention to the environment and sustainability when it comes to funding. “Lithium production causes severe environmental damage or you have to spend a lot of money to avoid it. And that in turn drives up prices. It is a difficult situation for German companies to get involved in countries where there is no such thing value is placed on. You certainly won’t be able to compete with the Chinese approaches there,” says Heidland. “On the other hand, German companies have the opportunity to score points in countries that want to consciously pay attention to sustainability. German companies with their experience in this area can make an attractive offer.”
Africa is also the focus of Chinese efforts: Zimbabwe, the Democratic Republic of the Congo, Ghana, Namibia and Mali together have over 4.38 million tons of lithium, according to the US Geological Society. So far, African countries only produce 40,000 tons a year – but this is expected to increase to 500,000 tons by 2030, with Zimbabwe as a key supplier.
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Investors from China act quickly
Chinese investors have also acted quickly here: Zimbabwe’s largest lithium mine, Bikita, is in the hands of the conglomerate Sinomine. Chinese company Zhejiang Huayou Cobalt owns control rights to Zimbabwe’s second largest lithium mine, Arcadia.
“Chinese investors have invested or planned an estimated $10 billion or more in lithium projects in Zimbabwe over the past three years,” said Clinton Pavlovic, an analyst at international law firm Hogan Lovells. Since Zimbabwe also has rich deposits of other raw materials necessary for the development of electric vehicles, such as cobalt, manganese, nickel and graphite, the country is all the more interesting for investors. This hasn’t changed with Zimbabwe’s December export ban on raw lithium – from which foreign companies that are already there are exempt.
Other countries in Africa also want to oblige investors to process raw materials locally in order to keep a larger share of the profits in the country. In Nigeria, too, China already controls the field. In January, Ming Xin Mineral Separation Nig broke ground on the construction of the West African country’s first lithium processing plant. The decision to award the bid to the Chinese firm came just months after Nigeria turned down a bid from US automaker Tesla, saying it was only interested in exporting raw lithium.