China takes rare earth aim at Raytheon and Lockheed

Date:

Beijing has announced sanctions on two American defense contractors while its top diplomat accused the United States of using Taiwan to suppress mainland China.

China’s Foreign Ministry said Monday it would impose sanctions on Lockheed Martin Corp, the maker of F-35 fighter jets, and Raytheon Technologies Corp, the world’s largest producer of guided missiles.

Early this month, Washington approved a deal for the two firms to provide maintenance services to Taiwan’s missile defense systems worth US$100 million. The latest round of Chinese sanctions marks its third salvo, with previous punitive measures imposed in 2019 and 2020.

State media said without Chinese rare earth minerals, the two US firms’ production would be seriously disrupted. However, it remains unclear whether Beijing’s latest sanctions will adversely affect the two companies as the US has already started boosting rare earth imports from Australia and started self-supplying the minerals in 2019.

Military tensions in the Taiwan Strait have intensified since last October when the People’s Liberation Army sent about 150 warplanes into Taiwan’s southwest air defense identification zone (ADIZ). After a three-hour virtual meeting on November 16, Chinese President Xi Jinping and US President Joe Biden failed to compromise on Taiwan matters.

On January 23-24, China’s Air Force sent 52 warplanes into Taiwan’s ADIZ. During an interview with National Public Radio (NPR), Qin Gang, China’s ambassador to the US, described Taiwan as the “biggest tinderbox” between China and the US, which he said could cause a “military conflict” over the future of the island.

However, the US was not deterred by the warnings. In late January, Taiwan Vice-President Lai Ching-te held a brief informal talk with US Vice-President Kamala Harris during a trip to Honduras and a virtual meeting with House Speaker Nancy Pelosi during a stopover in the US.

Soon thereafter, on February 8, the Biden administration approved a $100 million maintenance contract aimed at strengthening Taiwan’s missile defense systems amid rising tensions with China.

On February 11, the US unveiled a new Indo-Pacific strategy and said it would work with partners inside and outside the region to maintain peace and stability in the Taiwan Strait.

“To safeguard China’s sovereignty and security interests, the Chinese government has decided to take countermeasures in accordance with relevant stipulations in China’s Anti-Foreign Sanctions Law on the infringing acts of Raytheon and Lockheed Martin, both of which are military industrial enterprises that have long participated in the US’ arms sales to China’s Taiwan region,” Foreign Ministry Spokesperson Wang Wenbin said in a regular daily media briefing on Monday.

Wang said China firmly opposed and strongly condemned US arms sales to Taiwan, which seriously violated the “One China” principle and stipulations of the three China-US joint communiqués, gravely undermined China’s sovereignty and security interests, and severely harmed China-US relations and peace and stability across the Taiwan Strait.

Foreign Minister Wang Yi told US Secretary of State Antony Blinken in a phone call that the US had sent the wrong signal by releasing its Indo-Pacific strategy, which he said tries to use Taiwan matters to suppress China and contain mainland China with its partners and allies.

Wang accused some US officials of promoting a long-term struggle against China, which would probably become a full-blown conflict between China and the US. He urged the US side to realize the promises previously made by Biden to cooperate with China.

Wang and Blinken also talked about the situation in Eastern Ukraine. Wang said all parties should peacefully resolve their conflicts in the region in accordance with the principles of the Charter of the United Nations.

While China did not elaborate on the details of the latest sanctions imposed on Lockheed Martin and Raytheon, a commentary published by Chengdu Radio & Television, a state-owned media outlet, said China could freeze the two companies’ mainland assets and forbid them from buying Chinese rare earths.

“The latest sanction is a warning to Lockheed Martin. According to the Anti-Foreign Sanctions Law, we have the right to freeze its mainland assets,” said the article. “Lockheed Martin has many subsidiaries and suppliers in the mainland. They will definitely be affected by the sanctions.

“We can also take other necessary steps, such as banning rare earth exports to Lockheed Martin … Although the US also has rare earths, it will take time to develop its supply chain while China still owns the key processing technology of the minerals,” it said, adding that Lockheed Martin’s production would be affected by the sanctions.

Last June, the Standing Committee of the National People’s Congress passed the Anti-Foreign Sanctions Law, which aimed to counteract US sanctions imposed on Chinese officials and companies.

Beijing planned to extend the law to Hong Kong last August, but eventually withdrew the plan as financial institutions in the special administrative region said they could not operate under such a law.

On October 26, 2020, China imposed sanctions on Lockheed Martin, Raytheon and Boeing Defense over their arms sale to Taiwan.

Coincidently, Lockheed Martin announced plans to slow its production of F-35s and said it would postpone a scheduled live test of the fighter jet from December 2020 to sometime in 2021.

The state-owned Qinghai Radio and Television Station on November 1, 2020, published an article titled “China’s sanctions showed effects as Lockheed Martin suspended F-35 production.”

Citing experts quoted by Russian media outlet Sputnik, the article claimed China’s ban on rare earth exports had a quick and powerful impact on American defense contractors. It said that although Lockheed Martin would resume production of the F-35 in 2021, it would not have a full supply of parts without China’s rare earth minerals.

The article was rewritten and circulated by Chinese media last year and is still a part of Beijing’s propaganda against the US.

Until now, it has remained unclear whether the three US defense contractors were really affected by China’s sanctions. On November 18, 2020, the Hong Kong government said in a written reply to a pro-democracy lawmaker’s questions that it was closely monitoring the situation as the city’s international airport was using Raytheon’s radar system.

At that time, China had not yet passed the Anti-Foreign Sanctions Law or unveiled its plan to extend the law to Hong Kong.

In 2019, China supplied 80% of rare earths globally, although it only had about one-third of the world’s total known reserves, according to the United States Geological Survey. After China threatened to ban rare earth exports in 2019, the US started sourcing the minerals from other places, particularly Australia.

Last March, the US Department of Energy announced a $30 million initiative that will seek to research and secure the US domestic supply chain for rare earths and other important minerals in battery-making such as cobalt and lithium.

Analysts said China would still be a dominant rare earth supplier in the near future but its market share would likely decline due to the rising supply from other nations.

Read: China: Biden ‘Indo-Pacific’ strategy won’t succeed

Follow Jeff Pao on Twitter at @jeffpao3

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