Malaysia’s Rare Earth Strategic Asset Risks Crumbling Under Beijing’s Dictate – Analysis

The Kedah state government of Malaysia inked a memorandum of understanding (MoU) with Chinese technical partner Xiamen Tungsten Co Ltd to tap into RM60 billion worth of rare earth elements (REE) in the state, which highlighted the continuous reliance on Chinese expertise and resources in the country's vital strategic asset.

Malaysia remains a country blessed with strategic and vital resources, but remains at risk of being squandered the wrong way with long term strategic mistakes by its inability to break free from conventional trap and addictive lure of fast and easy gains.

In 2019, the Parliament of the country was informed that the country has RM732 billion worth of metal mineral reserves in the form of coal, tin ore, iron ore, gold, manganese, silica sand and kaolin to be explored.

Malaysia has been blessed with a significant amount of non-radioactive rare earth deposits. The US Geological Survey (USGS) estimates that some 30,000 metric tonnes of rare earth ores can be found in Peninsular Malaysia.

Globally,most of the rare earth elements are found in China, Australia, India and Vietnam.

Rare earth elements REEs) have been increasingly important in consumer electronics, electric vehicles (EV), clean energy, and most strategically, in military equipment and usage.

In the military, REEs are used in vital military assets, particularly precision-guided weapons, communication equipment, Global Positioning System (GPS) equipment, and other defence electronics.

China has the largest reserves of REEs at 44 million tonnes in addition to having the largest refinery controlling the market.

Lynas Malaysia's operation in Malaysia since 2012 has been able to break the monopoly by being the first refining plant outside China. It is also one of the world's biggest rare earth refining plants.

Rare earth is increasingly being used as another vital and critical resource factor in a greater global geopolitical competition especially in enhancing military technology and capacity and in technological supremacy, which includes technology and space race.

Beijing is cognizant of the fact of its grip on Malaysia, and knowing its future potential in this critical resource. It created the need for Beijing to break the Western momentum and precedence in Malaysia's local rare earth ecosystem with the presence of Lynas.

Beijing's pursuit in Malaysia in the rare earth spectrum is not entirely based on the want and intent on our core rare earth resources alone, as it is already a dominant producer. It is more on halting Malaysia's intent and option to have greater Western presence in this area, and to disrupt and put a stop to the momentum and capacity that have already been gained by the West in Malaysia in this regard.

Beijing's long game sees Malaysia as a convenient factor, and wants to maintain its technological and critical resources advantage against the intense competition with the US and the West, and will want to slow and halt the West's presence in this field in this part of the world.

It has seen increased pressure and negative impact from the Chips Act, and the growing impasse of its slowing economy and the losing of the edge in its hosting of critical top technological companies, now that a growing number of top companies including Apple are eyeing an exit due to the growing internal setbacks and dwindling appeal.

Other major producers such as India, Australia and Vietnam, all remain outside of the orbit of Beijing's influence and grip and thus, crippled Beijing's strategic pursuit. Malaysia hence remains a suited opening for Beijing, which it can use as an effective coercion and blackmailing tool.

Rare earth dominance can be used to disrupt and dominate supply chains in the region and the world.

Knowing its grip, China will want to use it as a bargaining chip in blocking the West's advantage, and to use it to its own military and technological advancement and also as the right bargaining cards with other players.

This fuels the need for China to resist the pressure from the US and the West amidst heightened rivalry and geopolitical competition, and Beijing's increasing strategic move in Malaysia in this area serves as a form of retaliating against the widespread and comprehensive Western blockade and sanctions on its critical technology particularly the chips embargo.

This new presence in Malaysia's rare earth ecosystem might make the country even more vulnerable to Beijing's dictate and exposing its already open risks to its vast array of tools, with its unique and prized assets being possibly beholden to Beijing's geopolitical play.

It hastens the potential to create a ripple and domino impact on other critical industries that will eventually benefit Beijing more, as can be seen already in the case of the ECRL, the Kuantan Industrial Park, Forest City project and many others that have fuelled Malaysia's long term debt and being beholden to Beijing's terms and dictate that will compromise its assets and resources that can be used to Beijing's gain, as a bargaining tool in Malaysia's debt obligation.

Rare earth can be used as a blackmailing tool to dictate Malaysia's options, where Beijing can capitalize on the spiralling debt commitment to it, from ECRL to other BRI projects.

Malaysia remains vulnerable to these being used to hold us to ransom, especially in our critical and unique resources that will be vital to Beijing's interests including rare earth, palm oil, oil and gas, semiconductor, rubber and others.

China's dominance of the rare-earths market is a relatively new phenomenon.

For the latter half of the 20th century, Mountain Pass in the US was the world's main supplier of rare earth metals. But during the globalization of the 1980s and 90s, China drastically amped up its mining efforts.China entered the market and in the '80s, flooded the market with low-priced rare earths elements and led to the going out of business of all the other mines globally.

It leveraged that monopoly on rare earths supply to subsequently dominate all of the value-adding steps, from mine through to metal through to magnet.

Beijing once blocked Japan's access to rare earth elements during a 2010 dispute over Tokyo's detention of a Chinese fishing trawler captain. Then in 2019, China threatened to include certain products using rare earths in Beijing's technology-export restrictions, a response to the Trump administration's pressure on telecom giant Huawei.

China could easily decide to restrict access to rare earths again with disastrous consequences.

In recent decades, China has been the most dominant producer with a peak of more than 90 per cent of the world's total output, leading to greater geopolitical situations, as world powers recognise the importance of this natural resource.
China accounts for 63 percent of the world's rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production.

Together, China and Myanmar produce 100 percent of the world's "heavy" rare earth elements, primarily dysprosium and terbium. Distinguished from "light" rare earths by their higher atomic numbers, heavy rare earth elements "blanket" the strongest rare earths magnets to protect them from high temperatures, according to independent research group Adamas Intelligence. They are used in stealth aircraft, missiles and other military equipment.

While China dominates production as a whole, its grip is greatest on the heavy rare earths. It's a relatively small, niche segment of demand overall, but very strategically important to almost any modern nation, according to this research group.

U.S. companies struggled to match Beijing's low costs, which are driven by government subsidies, low worker wages and poor environmental standards.

Across America, other rare earth mines closed because they could not compete with China. It gives China the perfect advantage and dominance, just like it enjoyed with other sectors through its currency and trade manipulation, pervasive economic tools including dumping and through the advantages it seized upon since joining the WTO.

In Kedah, RM60 billion worth of rare earth assets are ripe for extraction, it needs careful assessment and planning.
Past incidents of illegal mining and theft in Kedah are enough to ring alarm bells and make the country wiser and more strategic.

Throughout the country as a whole, there is a compelling and strategic need for all states with strategic resources, particularly rare earth, to coordinate with the federal government and also the National Security Council, in a holistic structure.

It will need the synergy and amalgamation of other expertise including advisory bodies consisting of top experts and strategic thinkers on how best to preserve and cultivate Malaysia's assets. This crucial strategy must not be left to any individual state or party to decide alone, bypassing greater national interests.

Malaysia must leverage on our strength and unique position on its key resources, which include its unique dominant positions on palm oil, rubber, and increasing our influence and stakes in the chips and semiconductor industry, and cannot continue to be under the dictate of Beijing.

It involves more than just easy and quick monetary return alone, as rare earth assets give returns in ways that are not only seen in monetary returns alone.

It will help Malaysia in greater ripple effects, in safeguarding its security and geopolitical advantage in the long run and in creating greater bargaining chips and cards.

It must have long term strategic calculations and planning on how this will benefit the country not only in pure and direct form of investment returns but in greater chain implications, by setting up productive industry and refinery mechanisms and processing structure and downstream capacity.

The future of mining, which is safer, resilient and sustainable and essentially more productive, has been proposed by some Western companies.

Data driven analytics, integrated and optimised productivity are proposed as some of the smart or green mining activities.
It has to be done in a clean, sustainable and resilient way, so that we can be a regional and global leader in this regard and in capitalising on new green and clean investments that will create a cascading impact.

There is a need to leverage on transparency, trust and a rules-based structure and system of proper resource extraction, transfer and usage.

Malaysia should leverage on the growing responsibility-driven and green practices of established institutions, primarily from the West and the US in capitalising on its momentum and invite more joint production with West based companies including Lynas who already has the ingrained expertise and experience in Malaysia.

This in turn will benefit the local economy, but more importantly, its strategic card in its greater long term survival and security interests.