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China and US in the Global Race for Lithium

Updated: Nov 28, 2023

Legal Analyst

Credit: Wikimedia Commons

Disclaimer: this article reflects the personal views of the author and does not necessarily represent the views of my employer, Capsticks LLP.


Joe Biden, in his Executive Order dated 9 August 2023, made clear that tensions between the US and China would not be easing any time soon. The Executive Order bans investment into certain technologies produced by countries of concern and follows an earlier ban by the US on exports of advanced microchips and chip-making tools to China. Such restrictions curtail China’s plans for strategic investments and advancements in tech, as seen with Intel already forgoing an international chip deal worth £4.2 billion to acquire Tower Semiconductor in August this year.


As China faces these headwinds, it is aided by its position as one of the world’s top lithium producers. The US follows one place behind China in global rankings for quantities of lithium reserves in 2022, as it held 1000 MT of lithium compared to China’s 2000 MT. Chile’s 9,300 MT of lithium reserves are considered to be the largest globally, according to Investing News Network. Investment into the lithium industry sky-rocketed in 2022 as markets reacted to the increased reliance on metals like lithium to produce low-carbon technologies, which the World Bank predicts to require more than three billion tons of metals like lithium. Askar projects demand for lithium will increase thirty-fold by 2040, making lithium an exciting investment opportunity for businesses across the globe.


Despite the drop in lithium prices in 2023, demand is predicted to remain strong and states and businesses are taking steps accordingly to continue to expand their processing and refinement capabilities. A closer examination of the lithium industry offers insight into how this expansion is taking place and the exacerbated tensions between the US and China as the two countries compete to strengthen their position in the lithium industry.


What is lithium used for?


Refined lithium is predominantly used in mobile phones, digital cameras and electric vehicles in the form of a lithium-ion (Li-ion) battery. These batteries possess the useful qualities of being re-chargeable, having a high energy density and having a long lifespan, making them ideal for use in low-carbon emitting technologies like electric vehicles as well as more widely in the renewable energy sector. In order for lithium to be used in Li-ion batteries, it needs to be extracted either through hard-rock extraction or from underground brine water. The lithium then undergoes a chemical transformation process in processing plants to be purified and refined into a solid metal.


Why is lithium so desirable?

With a host of countries including China, US and the EU committing to net-zero targets, low-carbon technologies - in which Li-ion batteries are essential - are beginning to play a greater role in strategies to achieve these targets. One way in which governments are looking to reach targets is through incentivising the manufacturing and purchasing of electric vehicles. China granted subsidies to electric vehicle buyers from 2010 to 1 January 2023 and has recently unveiled a $72 billion tax break on electric vehicles and other green vehicles, Reuters reports. The US Inflation Reduction Act (2022) also incentivises the purchasing of electric vehicles in the US, allowing consumers to qualify for a ‘Clean Vehicle Credit’ of $7,500 so long as the vehicle meets certain standards. These incentives have successfully generated an increase in demand for electric vehicles, as the International Energy Agency (IEA) reports electric car sales to have exceeded 10 million in 2022 - a 55% increase from 2021. The 2023 outlook appears equally strong, as the IEA reports that 25% more electric vehicles were sold in the first quarter of 2023 in comparison to 2022.


With net-zero targets and consumers becoming increasingly conscious of their environmental impact, the demand for electric vehicles is anticipated to remain high. Lithium is a key component in the production of electric vehicles with the US Department of Energy reporting that most plug-in hybrid vehicles and all-electric vehicles in their sample use Li-ion batteries. Therefore investments in lithium extraction and refinement are highly desirable not only for investors, but also for countries rich in rare-earth minerals. The industry has the potential to create employment opportunities, develop national infrastructure and up-skill workers to become proficient in running and operating refinement facilities, which in turn will provide steady jobs and wages. The sharp fall in lithium prices since its peak in November 2022 may call into question whether the value of lithium was over-estimated, but Larsen suggests this fall can be attributed to a temporary abundance in supply and the January 2023 cut in subsidies by the Chinese government for electric vehicle purchases. Long-term demand is predicted to be robust, as the future availability of lithium, a finite resource, is uncertain beyond 2024.


Foreign investments


Data from Statista indicates that the top producers of lithium in 2022 were Australia, Chile and China which produced an estimate of 61,000, 39,000 and 19,000 MT, respectively. US lithium production rates trailed behind China, having produced an estimated 2,700 MT in 2022. Whilst statistics relating to lithium reserves and production vary between sources, it is widely understood that Australia, Chile and China are leading in lithium production globally. A closer examination of China’s success in amassing a strong lithium production capacity sheds light on its strategic use of foreign investments and partnerships.


Information from the Visual Capitalist indicates that China has taken steps to further acquire approximately $5.6 billion worth of lithium assets in Chile, Canada, and Australia over the last decade. These investments, most often taking the form of public-private partnerships, are predominant in Africa and especially in Zimbabwe, which is home to the largest lithium reserve in Africa and is the sixth largest lithium reserve in the world. Zimbabwe has become a burgeoning hub for lithium mining as China’s Sinome Resource Group bought Bikita Minerals, one of Africa’s oldest lithium mines, for $180 million in January 2022. Prospect Lithium Zimbabwe, an arm of Chinese company Zheijang Huayou Cobalt, also opened a $300 million lithium processing plant in July 2023.


The extensive investment by Chinese businesses in Africa has raised concerns with the US, who organised the Minerals Security Partnership (“MSP”) in 2022 to limit reliance on Asian countries for supply. The MSP is a multilateral initiative aimed at ensuring high Environmental, Social and Governance (“ESG”) standards alongside offering critical mineral projects to MSP partners. Partners on this scheme include: Australia, Canada, Finland, France, Japan, the Republic of Korea, Norway, Sweden, the United Kingdom, the United States, and the European Union. The MSP is an example of increased industrial policy and indicates a growing concern from the US and other market players around China’s dominance of the lithium supply chain.


A key trend in Chinese investments is the move towards dominating the midstream market by conducting mining abroad whilst processing lithium locally. In doing so, they are able to access the abundance of rare-earth minerals found across the African continent, which is not so available in China and which FdI Intelligence reports to account for less than 25% of the world’s lithium resources. Through strategic trade investments in mining facilities across Africa, Chinese businesses also save on costs for building mining facilities, which can take between three and seven years to build, according to S&P’s global analysis in 2019. According to S&P Global, the hard-rock extraction mines prevalent in Africa are also less expensive to develop than extraction from brine, which is the predominant means of extraction in China, Chile, Australia and the US. African countries like Zimbabwe, Namibia and the Democratic Republic of Congo (DRC) also benefit from these investments which develop local facilities and train workers, allowing African countries to generate increased revenue from its natural resources - but at what cost?


Export restrictions


Whilst countries rich in lithium reserves like Zimbabwe and Chile are reaping the benefits of foreign investments, there is a move towards developing refinement capacity locally to capture more profits by creating state-owned companies. The Chilean President, Gabriel Boric, has previously stated that lithium contracts would only be issued as public-private partnerships with state control. Zimbabwe similarly banned lithium-ore exports in December 2022 through its Base Minerals Export Control Act to encourage local extraction and processing capabilities. The move for increased state involvement in controlling lithium exports and production appear to be for three key reasons: (i) to ensure natural resources are not exploited through foreign investments, (ii) to withhold more profits and (iii) to protect the natural environment.


The environmental impact of lithium extraction is of concern to local communities as the process takes up large expanses of land and natural water which is used to pump brine to the surface but causes air and water pollution. The need to move large amounts of earth and the consumption of vast expanses of water can unsettle local ecosystems and threaten endangered species. An increase in restrictive measures impacting how natural resources are used indicates a growing consciousness by states rich in lithium and other rare earth minerals regarding the wider social and environmental impact of lithium extraction processes. Consequently states like Zimbabwe and Chile are accepting less foreign investments as they strive towards developing extraction and refinement capacities locally.


Key takeaways


Ultimately the reliance on Li-ion batteries in the electric vehicle sector is stirring strategic activity across the globe as states seek to invest in lithium and develop refining capacities. The race to possess sufficient lithium reserves to cater for future electric vehicle demands can be seen to strengthen international relations through public-private partnerships. However, the competition is also driving tensions, as export bans limit investment opportunities and joint industrial policies attempt to re-distribute control over the lithium supply chain.


Tensions are also spurred by the race to develop cheaper and more efficient means of extracting, processing and refining of rare earth minerals to offer lower costs amidst the frenzy of lithium de-stocking in recent months. Therefore, it will be fascinating to follow the relationship between China and the US, as well as other key market players as net-zero targets and increased global reliance on electric vehicles continue to drive the demand for lithium.


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