China takes a greater slice of the critical mineral supply chain
Western miners finding it difficult to compete with China’s numerous advantages
China continues to dominate, and even increase its grip, on critical mineral supply chains, despite concerted Western, Japanese and South Korean efforts over the last few years. China’s share of lithium processing has increased from 63 percent in 2018 to 70 percent now. It has also grown its share of lithium mining from 14 percent to 35 percent in the same period. In 2023, the amount of cobalt produced outside of China was reduced to its lowest point since 2009. This comes as Chinese lithium miners step up their production to new levels. China’s Zijin Mining aims to increase lithium production by 85 times this year after its 2022 acquisition of Canada’s Neo Lithium. Meanwhile, Western companies are struggling to compete. In April, Australia’s Queensland Pacific Metals announced that it will rein in plans for a nickel processing facility. For the past few years, Western governments have been attempting to compete with China with grants and tax incentives.

Chinese mining companies have several advantages over their Western counterparts. For one, they are more able to weather the storm of fluctuating mineral prices due to a greater degree of government ownership. Beijing has brought several of China’s rare earth miners under the ownership of state-owned China Rare Earth Group over the past few years. Rising Nonferrous Metals (RNM) is one of several members in the group reporting large losses due to declining rare earth prices. In the first half of this year, RNM reported a net loss of up to 311 million yuan (US$42.8 million). These losses are often absorbed by the State. Even with subsidies, Western miners are bound by the strictures of the market. Intense competition between state-backed Chinese miners in Indonesia has pushed the price of nickel well below the level where Western miners can compete. Australia’s nickel industry has collapsed as a result. Chinese companies are also generally less concerned about ESG pressures in host countries with large critical mineral reserves such as the DRC, which produces most of the world’s cobalt.

 
BYD announces plans for Turkish EV factory
BYD may bypass European tariffs
BYD’s recently announced plans to build a US$1 billion EV factory in Turkey with exemptions from Ankara’s tariff and non-tariff barriers. In March 2023, Turkey imposed a 40 percent tariff on Chinese-made EVs, on top of the standard 10 percent tariff for all imported cars. Later mandates required all companies importing EVs to Turkey to have at least 140 authorised service stations distributed evenly across the country and a call centre for each brand. Turkey is intent on protecting its domestic EV producer, Togg. In 2023, Togg accounted for 30 percent of Turkey’s EV market, followed by Tesla at 18.5 percent. BYD’s share was less than 1 percent. The automotive sector leads Turkey’s exports, exceeding US$35 billion annually.

BYD’s investment in Turkey is a vindication of Ankara’s strategy to use tariffs to incentivise local production. BYD also stands to gain. Turkey’s membership of the European Customs Union Agreement will enable BYD to bypass European EV tariffs on cars manufactured in China. Provisional tariffs of 37.6 percent were issued in July after an EU Commission investigation uncovered extensive evidence of market distorting subsidies. The EU will vote in November on whether to make these tariffs permanent. An additional sweetener for BYD is Turkey’s Free Trade Agreements with over 20 countries worldwide. BYD’s Turkish factory is tellingly being built 40 kilometres away from a major port off the Aegean coast. BYD is already thinking long term in its quest to deepen market share in Europe, calling into question the efficacy of Brussel’s tariffs.
 

Nguyen Phu Trong’s death foreshadows political uncertainty in Vietnam
With To Lam as Trong’s likely predecessor, prioritisation of Party security over economic development could intensify
Last week saw the death of Nguyễn Phú Trong – the General Secretary of Vietnam’s Communist party (VCP) and the country’s most powerful politician – leaving Vietnam in unchartered waters. Trong started his tenure in 2011 and served two full terms as Vietnam’s de facto leader. Since 2016, Trong’s ‘blazing furnace’ anti-corruption campaign has disciplined over 139,000 party members, including Politburo members, generals and many senior government officials. Most notably, former president Vo Van Thuong was forced to step down in March, a little over a year after his predecessor, Nguyen Xuan Phuc, experienced the same fate. The anti-corruption campaign dovetailed with a broader theme of Trong’s tenure which saw increasing centralisation (including through the breaking up of factional cliques in the provinces) and the reassertion of Party primacy.

What Trong was unable to do, however, was to secure the appointment of a clear successor. At the last Party Congress in 2021, Trong failed to secure the election of his primary ally, Chairman of the Central Inspection Committee, Tran Quoc Vuong, who headed Trong’s anti-corruption campaign. This resulted in Trong winning an unprecedented third term at 76 years old, despite VPC convention stipulating that senior leaders should retire at 65 and serve no more than 2 terms. Trong’s most likely successor appears to be the incumbent President To Lam, who was appointed in this role in 2024. To Lam became President after serving as the Public Security Minister for 8 years. As Minister, To Lam presided over the corruption campaign which dismissed several prospective leadership contenders.

A To Lam administration would likely see the continuance of the gradual emphasis on security over development. After a protracted anti-corruption campaign, half of the Politburo is now made up of ex-police or armed forces. There is a real risk that the Politburo has lost a considerable amount of the technocratic expertise that was vital to Vietnam’s previously rapid economic development. This is not to say that retaining and increasing foreign investment will no longer be core priorities. Rather, security exigencies will have greater weighting in the selection of personnel and policy formulation.
 

Japanese vehicle manufacturers to jointly develop an EV battery passport
Scheme will help facilitate adherence to the EU’s plans to issue maximum carbon footprint requirements for batteries
Japanese automakers are coalescing to create a ‘battery passport’, as they look to make their EV battery supply chains more transparent. Participants of the scheme include Mazda, Honda, Nissan and four other companies. The battery passports will provide consumers and companies with information on the materials included in the battery, their sourcing location and whether they have been recycled. It will initially be rolled out in Europe in 2027. The program will complement a scheme initiated in April, in which Japan and the EU will establish a data sharing platform that will share information on where EV battery materials are being procured.

The efforts aim to comply with Brussel’s looming regulations in which all EVs sold in the EU will require a passport by February 2027. This aims to ensure compliance with the EU’s requirement for 50 percent of the lithium content of EV batteries to be recycled by 2027. These measures will act as the first step towards the EU’s goals to set a maximum carbon footprint for EVs. The EU also hopes that this strategy will help reduce reliance on lithium sourced from China, which controls around 65 percent of the world’s lithium processing capabilities.

However, automakers may encounter challenges in collecting data on highly complex and multifaceted EV battery supply chains. It may be particularly difficult to extract information out of Chinese companies, which were already hesitant to hand over data during the EU’s separate investigation into Chinese EV subsidies. Chinese companies may have an incentive to downplay the emissions embedded in their supply chains. A report last year by research firm Transport & Environment found that onshoring EV supply chains to Europe from China would reduce emissions of batteries by 37 percent.
 

China seeks to unite provincial electricity markets
Beijing is trying to address significant and growing level of renewables curtailment
China is undertaking a major upgrade to its electricity grid, in an attempt to unite fragmented provincial markets into a national power market and integrate new renewable energy capacity. Beijing has committed US$800 billion to revamp its electricity grid over the next six years. China has accounted for over a third of grid expansion in the world over the past 10 years. The upgrades aim to address China’s ageing grid, which has struggled to keep up with the massive buildout of renewable energy projects. While wind and solar accounted for over 50 percent of installed energy capacity in China at the end of 2023, only 16 percent of the country’s electricity consumption came from those sources last year. Grid bottlenecks and poor planning have caused massive curtailment for renewable energy resources in the country. Over 100 cities and counties in China over the past 12 months have decided to suspend small-scale solar projects from connecting to the grid.

The physical infrastructure alone will not be sufficient to move towards an integrated national market. The development of China’s electricity market – a reform reinforced at last week’s plenum - will be crucial. China’s limited electricity market has long been based on fixed medium and long-term contracts within and between provinces. In contrast, spot markets present a liberalised form of electricity trading that can better adapt to the intermittency of renewables. Last September, China published its first draft rules for spot market trading between provinces, which eventually will be rolled out nationwide. The rules outline market price caps (which are much higher than with medium and long-term contracts), set out transaction procedures and define requirements from operators. This follows years of spot market pilots within various provincial markets, as well as an interprovincial spot market trial in 2022. However, the more liberalised nature of spot markets will not be without significant political economy challenges. China’s manufacturing industry has long been advantaged by the country’s artificially low power prices enforced through price caps.