EU proposes to ‘reduce reliance’ on China’s minerals supply, but move will exacerbate its economic woes: experts

European Commission President Ursula von der Leyen proposed new legislation on Wednesday to reduce EU's dependence on supply of critical minerals including rare earths and lithium from China, a move that will increase the cost of achieving Europe's green targets and exacerbate its current economic woes amid the deepening energy crunch.

Chinese observers urged European policy-makers to resort to bilateral consultations when it comes to trade ties with China, and they called on the bloc to avoid politicizing economic issues in its policy-making for the benefit of sound China-EU relations, the Global Times reported.

"We will identify strategic projects all along the supply chain, from extraction to refining, from processing to recycling. And we will build up strategic reserves where supply is at risk. This is why today I am announcing a European Critical Raw Materials Act," said Von der Leyen in the annual State of the Union address.

Von der Leyen also warned that almost 90 percent of global rare earths and 60 percent of lithium supplies are processed in China.

"Rebuilding supply chains of rare earths will take years, especially in the separation process," a manager of a state-owned rare-earth enterprise surnamed Yang based in Ganzhou, East China's Jiangxi Province, told the Global Times on Thursday.

Industry observers said that a restructuring will take time and raise costs, which will exacerbate soaring inflation in Europe amid the ongoing energy crisis - which has already triggered street protests and growing anger across European countries.

"The consequences of decoupling from Russian energy imports are already dramatic for citizens and industries in Europe…if we now add raw materials sourced from China, the consequences will be even more severe," Stephan Ossenkopp, a Berlin-based expert associated with the Schiller Institute, an international think tank, told the Global Times on Thursday.

If the proposed policy prevails, Europe will become more and more economically insignificant, said Ossenkopp, describing Von der Leyen's speech as "overly theatrical".
 
The German expert noted that Von der Leyen admitted that the demand for rare earths in Europe will increase fivefold by 2030 in order to supply the raw materials for wind and solar power plants in the continent, "so one may find oneself in a double self-made dilemma."

"The EU has great demand for highly processed rare-earth products and related components, such as neodymium magnets and finished products," Yang said.

According to a report from the European Raw Materials Alliance, about 16,000 rare-earth permanent magnets are exported from China to Europe each year, representing approximately 98 percent of the EU market.

It's unclear whether countries within EU can agree on the legislation and to what extent it will be followed, Cui Hongjian, director of the Department of European Studies at the China Institute of International Studies, told the Global Times on Thursday. 

Cui noted that the proposal was actually raised against a backdrop of heightened global conflict, and political and supply chain instability. In this context, all economies will be affected, and it is understandable to put security issues and the consideration of supply chain and industrial chain security in a relatively important position.

However, in the process of economic and trade exchanges with China, Europe should avoid politicizing industry chain issues, Cui said, calling for solutions through dialogue, rather than pushing for discriminatory legislation that targets Chinese companies.

"Amid complex and volatile international situations, the world needs more bridges and roads rather than more walls. China and the EU should join hands for development and prosperity, and promote international cooperation and human progress," Chinese Foreign Ministry spokesperson Mao Ning said on Wednesday.

China and the EU are important economic and trade partners and important forces in building an open world economy, Mao said, noting that despite the impact of the pandemic, China-EU economic and trade cooperation has shown strong resilience and vitality. 

In 2021, bilateral trade between China and the EU exceeded $820 billion, a record high. In the first half of this year, trade between the 27 EU members and China was 413.9 billion euros, a year-on-year increase of 28.3 percent. 

The two sides still have room to expand their cooperation, for instance, in the digital economy and green energy and other fields, Cui said.