China is solidifying its dominance in critical minerals and metals through substantial investments across the Global South, significantly diminishing the export opportunities for Australian producers. The recent closure of a lithium refinery in Western Australia after merely four years of operation serves as a stark warning of this shifting landscape.
Refinery Closure Highlights Competitive Pressures
In February, US-based Albemarle ceased operations at its South West lithium refinery, attributing the decision to an inability to compete with China's low-cost production capabilities. This shutdown underscores the growing challenges faced by Western companies in the critical minerals sector.
Strategic Diversification by China
Tim Buckley, director of Climate Energy Finance, emphasised that the refinery's closure is a direct result of China's strategic efforts to diversify and expand its critical minerals and clean technology capacity. 'That is a serious problem,' he stated. 'We will remain a dig and ship country if we cannot convince other nations to value the geopolitical stability we offer.'
Buckley co-authored a report detailing China's evolving strategy to entrench its control over essential elements like lithium, copper, nickel, and rare earths within the low-carbon supply chain. The Asian powerhouse has not only invested heavily in domestic mining and manufacturing but has also launched a comprehensive foreign investment strategy focused on the Global South.
Massive Outbound Investment Reshapes Markets
China's tracked outbound investment totals a massive $160 billion, representing a strategic move to reduce its reliance on key export markets, including Australia. Unlike past extractive mega-projects, China is now channelling funds into smaller, high-tech manufacturing facilities offshore to secure long-term access to vital materials.
Furthermore, very little of China's overseas spending is reaching Australia, with foreign direct investment experiencing an 85 per cent collapse since 2018, as identified by consultancy KPMG.
Urgent Need for Australian Adaptation
Buckley warned that Australia must adapt swiftly to China's reshaping of the green economic geography. 'It is imperative that we act now to shift these dynamics in Australia's favour to become a renewables-powered mining and value-adding superpower, or risk remaining on the sidelines as the world's quarry in the new global economy,' he asserted.
In the absence of a strong international carbon pricing signal to support greener manufacturing, Buckley advocates for Australia to intensify its focus on 'green energy statecraft.' This approach involves crafting trade arrangements and strategic investments that assist key trade partners in meeting Paris climate commitments while securing a higher green premium for Australian processed goods.
Examples and Recommendations for Australia
The long-term agreement between Australia's Lynas Rare Earths and Japan, which guarantees a floor price for rare earth supplies, is highlighted as a 'perfect example' of effective green energy statecraft. Australia should also seek opportunities to selectively engage with China, its largest trading partner, on green partnerships before diversification efforts become more pronounced.
While the $81 billion in federal capital support under the 'Future Made in Australia' initiative is described as 'directionally correct,' it is deemed insufficient without a carbon pricing signal to attract private investment. The think tank recommends that Australia work towards implementing an explicit, whole-of-economy carbon price and leverage Energy Minister Chris Bowen's COP31 presidency to advocate for a regional Asian carbon border adjustment mechanism.
