(Original title: European Central Bank Anxiety: Buy with the United States, behind China...)

► Wen Observer Network Ruan Jiaqi

According to the Wall Street Journal, the European Central Bank (ECB) released its latest report on Tuesday that the eurozone is heavily dependent on Chinese rare-earth minerals.If the supply of rare-earth from China is interrupted, the eurozone economy will face a double threat of rising inflation and slowing economic growth.

The report pointed out that China supplies 70% of rare earth imports in the euro zone. What is more noteworthy is that the euro zone purchases secondary products containing rare earths from countries other than China, and its suppliers are still highly dependent on China's rare earth raw materials.

This makes the euro zone "very vulnerable" in the face of China's rare earth export restrictions. According to the report, the supply chain disruption caused by China's export restrictions may push up the input cost of manufacturers, especially the automobile, electronics and renewable energy industries. "The industries to which these commodities belong are the core links of the euro zone industrial chain". In addition, raw material shortages may also lead to production stagnation, which in turn drags down industrial output and inhibits overall economic activity.

According to Bloomberg¡¯s analysis, only a handful of Eurozone companies purchased rare earth directly from Chinese suppliers, such as Airbus and BASF; more than 80 percent of large European companies had less than three intermediate links with Chinese producers of rare earth; and about a quarter of companies (including Volkswagen, Renault, and Telecom Spain) purchased rare earth only through one intermediate link.

The report noted that most of these intermediaries are U.S. tech companies, and the rare earth used for their production is still supplied by Chinese companies.

"Although only 157 American companies serve as direct intermediaries between euro zone companies and Chinese rare earth exporters, these companies provide products to many euro zone partners," the report reads. "These well-known American technology companies including Microsoft, Apple and Intel are active in strategic industries such as semiconductor manufacturing, precision magnet production and chemical processing, and their raw material procurement depends on China."

Screenshot of the ECB report on the relationship between Chinese rare earth producers and euro zone companies

The ECB explained that this dependence on the indirect supply chain increases the risk of potential supply disruptions for euro area companies, ¡°because even a slight disruption in Chinese exports could spread to the middle side, thereby affecting a wide range of industries.¡±

According to the analysis of the report, China has begun to take advantage of its "quasi-monopoly" position in the field of rare earths in international trade disputes.

As of June, the total imports of rare earth from China had been below the normal level, and the European automotive industry issued a warning that rare earth inventories had dropped to critical levels, leading to the shutdown of production lines and factories in Europe.

The ECB is concerned that this means China is willing to use rare-earth resources as a tool of pressure ¡°in the current trade negotiations with the EU, China may also put pressure through rare-earth resources,¡± and the report urges the EU to implement the Key Raw Materials Act to strengthen the raw material supply chain in mainland Europe.

Eurozone Rare-Earth Imports from China

On the issue of rare earth export control, China has repeatedly stressed that relevant policies are in line with international practice, and is willing to continue to strengthen dialogue and cooperation in the field of export control with relevant countries and regions, jointly safeguarding the stability and security of the global supply chain.

China's European side clarified that the implementation of necessary controls on military and civilian dual-use objects is the exercise of sovereignty by all countries, it is also to fulfill international obligations, China's policy is in line with international practices, it is also conducive to safeguarding world peace and stability, rare-earth exports have never been, and should not become a problem between China and Europe, as long as the export control regulations are observed and the necessary procedures are fulfilled, the normal needs of European enterprises will be guaranteed.

The report also acknowledges that after the introduction of rare-earth export licensing measures in China, the European authorities have negotiated to secure a way to quickly approve licenses for some European companies.

According to data released by the General Administration of Customs on September 20, China's rare-earth magnet exports to the European Union increased by 21% in August this year, reaching 2,582 tons, which has three times exceeded U.S. exports since the beginning of this year.

Bloomberg that last month, China's exports of rare-earth magnets to the EU rose sharply, highlighting the EU's reliance on China's supply greater than the United States.The report followed by saying that the EU is overly dependent on China's rare-earth, making its industry vulnerable to the impact, and is vulnerable to China-US trade tensions.

Earlier supply shortages had a ripple effect across the EU. The European Chamber of Commerce in China said on the 18th that EU companies suffered seven production interruptions in August this year, and 46 new shutdowns are expected this month.

Chinese Flag and European Union Flag

China¡¯s dominance in rare earth has prompted Europe to accelerate its plans to find alternatives. The EU¡¯s Key Raw Materials Act came into force last year, which includes proposals to recycle more rare earth elements from waste electronics. In addition, the European electric car industry is also looking for rare earth supplies in places like Estonia; and in the United States, the only rare earth miner MP Materials company plans to start commercial production of rare earth magnets later this year.

However, the Financial Times that Western efforts to build competitive supply chains and break China¡¯s dominance will face challenges in terms of cost and scale.

Analysts generally believe that thanks to decades of national planning and strategic acquisitions, China has become the lowest cost producer in every stage of the rare earth value chain, while most Western companies have been believed to ¡°pursue the lowest cost at all costs.¡±

In June this year, Chinese Foreign Ministry spokesperson Guo Jiakun pointed out that China has always adhered to a responsible and non-discriminatory attitude, fully considered the reasonable civilian needs and concerns of various countries, and reviewed export license applications in accordance with laws and regulations. Considering that rare earth-related items have dual-use attributes, China has taken relevant measures in accordance with its own regulations on export control of dual-use items, which are in line with international practices and are not targeted at specific countries.

China's Ministry of Commerce spokesman Hoya Dong also said earlier that China, as a responsible big country, fully considers the reasonable needs and concerns of all countries in the private sector, examines applications for export permits for rare-earth related objects in accordance with the law, has approved a certain number of compliance applications in accordance with the law, and will continue to strengthen the approval work of compliance applications.