Sino-Japanese Tension and Jamaican 'Rare Earths' - ProEdgeWire

Japan’s economy shrunk in the second half of 2012 and the outlook for 2013 is poor with a projected growth rate of 0.8%. The World Bank and many Japanese economists have blamed the poor performance outlook on Japan’s continuing territorial dispute with China over control of the Senkaku / Diaoyu Islands in the East China Sea. Bilateral Sino-Japanese relations exacerbated significantly since last September when the Japanese government purchased the islands from private citizens – the Kurihara family – for about USD$ 25 million. The repercussions were almost immediate in China. Chinese citizens protested and targeted Japanese businesses and interests and volume of Japan’s exports to China dropped by almost 20%, reflected by a 3.5% contraction in the Japanese economy in the third quarter. The election of a more overtly nationalistic government in Japan has only served to raise the tension: it is now reaching a ‘cold-war’ temperature.

Japan has deployed its Navy to encircle the islands, or try to do so, while China has retaliated by promising a revision of territorial water delineations, which, if approved, could make navigation in the East China Sea far trickier. Japan, has stirred the Senkaku pot further by engaging in a series of air exercises and enacting its first ever ‘military games’ display since World War II. The United States will participate in the air exercises. Japan’s new Prime Minister Shinzo Abe promised to adopt an uncompromising stand against China during the election campaign and he has stressed Japan’s sovereignty claims over the Senkaku. Neither Japan nor China have pulled any triggers so far; however, they are pushing ever closer to a dangerous point of no-return. It is unclear what actual value the islands have.

There are said to be possible oil and gas deposits but an agreement for joint ‘development’ of the islands signed by Japan and China in 1998, in a détente effort, was never fulfilled. What is clear is that Japan’s economy needs a boost and that China’s economy is growing at a slower pace than it has grown accustomed to boast: Japan and China cannot afford the Islands dispute for much longer. Japan unveiled a stimulus package revolving around the devaluation of the Yen in order to favor exports. The World Bank suggests that Japan’s economy would benefit were the Senkaku problem to be shelved; indeed, it went as far as suggesting that improved Sino-Japanese relations would contribute to a global economic recovery rather than just a regional one.

One of the most pressing problems that will have to confront, should the dispute with China exacerbate further, is that it is the world’s largest user of rare earth elements, which China extracts and processes more than anybody else. Rare earths are critical in a number of applications, not the least of which are the production of materials used in the hybrid vehicles and electronic devices that Japan markets successfully around the world. Japan has been looking for other sources and it is looking forward to such alternatives as Lynas, which just started processing rare earths in Malaysia. Nevertheless, whenever tensions between Japan and China reach a boiling point, so do the world’s rare earth resources suddenly expand to include massive underwater deposits of heavy rare earths (HREE) off the coast of Japan or even off the coast of India.

This pattern started in 2010 when the Senkaku dispute reached the highest tension before the current and most intense peak. Such is the background to consider, then, when evaluating the most recent REE bombshell from Jamaica. Indeed, Japanese scientists have discovered that Jamaican bauxite tailings, in the form of red mud, contain valuable rare earths. Unknown Japanese investors, presumably those who sponsored or conducted the research, are said to have already invested USD$ 3 million in a project to develop them. In fairness, it was Jamaica’s mining minister Philip Paulwell, who made the announcement, even though the emphasis was on the fact that the Japanese firm Nippon Light Metal (NLM) was involved, a company known for its bauxite and aluminum processing and smelting.  NLM has no record of having had any experience in developing rare earths. The minister expressed great hopes for the ‘rare earths’ discovery. He said that “… The government of Jamaica perceives the extraction of the rare-earth elements that are present in Jamaica to be an exciting new opportunity to earn much needed foreign exchange and create jobs.” Nevertheless, and in spite of such enthusiasm, a pilot program to investigate the project has been stalled by regulatory constraints – a rather odd turn of events, given the stress on the project’s contribution to economic recovery in Jamaica.

Nippon Light Metal has alleged that it might be able to extract some 1,500 tons of REE’s a year, but offered little else about the intended process or any other detail. Meanwhile, Japan continued to snub and provoke China today with a far more realistic announcement that Prime Minister, Shinzo Abe, has been touring key economic powers in South East Asia including Thailand, Vietnam and Indonesia, clearly challenging those countries’ economic ties to China. Japanese manufacturers have decided to boost their presence in those markets to offset risks to their investments in China as anti-Japanese riots capture public sentiment and trade tensions build between Tokyo and Beijing. Japan is also exploiting growing tensions between China and Vietnam over control of the mineral rich South China Sea, echoing its own territorial challenge in the East China Sea. The timing and circumstances of the Japanese-Jamaican rare earth deposit appear all the more suspicious as the product of some Japanese official’s over-enthusiastic consumption of certain plants that grow vigorously on the Caribbean island.