Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How China Is Winning Africa's Rare Earth Race
Transcript
- Lucas: Luna, I've been digging into a story that doesn't get enough attention — China's quiet but aggressive push into Africa's rare earth deposits. And I think one deal in particular, signed just last month in Tanzania, really shows how Beijing is playing the long game. Luna: Rare earths — those are the 17 elements you need for everything from EV motors to F-35 jets, right? I know China dominates processing, but I thought mining was more spread out. Lucas: That's the conventional wisdom. But the numbers tell a different story. China currently controls about 60 percent of global rare earth mining and a staggering 90 percent of processing. So even if a mine is in California or Australia, the ore often ends up in China for refining. That's the bottleneck. Luna: And that's exactly what Tanzania's Ngualla deposit — operated by a company called Peak Rare Earths — is trying to break, or at least diversify. The deal is that a Chinese state-owned enterprise is providing financing and offtake agreements. Lucas: Right. In exchange for a long-term supply agreement, the Chinese side is helping fund the mine's development and committing to build a processing plant in Tanzania itself. That's a shift. Historically, China just imported raw ore and processed it at home. Now they're moving some of that processing capacity overseas — but still under their control. Luna: So it's not really about giving up control — it's about locking in supply chains while preempting Western efforts to build their own refineries. If you can process in Africa, you avoid the geopolitical risk of shipping everything through Chinese ports. Lucas: Exactly. And the Chinese are doing this across the continent. There's the Longonjo project in Angola, focused on neodymium and praseodymium — the key magnets for EVs. There's also activity in Malawi, Burundi, and South Africa. It's a systematic play: infrastructure financing, mining rights, and processing technology, all bundled together. Luna: The US and Europe have been trying to counter this with their own initiatives — funding refineries in Australia and Canada, and backing projects like the MP Materials mine in California. But those are years behind, and they still rely on Chinese expertise for some stages. Lucas: And here's the thing — the economics favor China. The trade-weighted US dollar index is at 120.5, which makes dollar-denominated mining investments expensive for many African governments. Meanwhile, the yuan-dollar rate has held steady at 6.78, and China offers loans in yuan with lower interest rates and fewer strings attached — at least, fewer public strings. Luna: That's a powerful tool. If you're a finance minister in Tanzania or Angola, you look at a Western loan that requires environmental audits, transparency clauses, and maybe human rights conditions — versus a Chinese loan that just asks for mineral rights and maybe a pledge to use yuan for settlement. The choice is pretty clear. Lucas: And it's not just about rare earths. China is also doing this for cobalt, lithium, and copper. But rare earths are strategically critical for defense and high-tech manufacturing. If China can secure the entire upstream supply chain — from mine to magnet — outside its borders, it effectively neutralizes Western efforts to decouple. Luna: So what's the Western counterplay look like in practice? Are there any projects that are actually on track to compete? Lucas: There are a few. The one I'm watching is the Hastings Technology Metals project in Western Australia, which aims to produce mixed rare earth carbonate by 2027. They've secured offtake agreements with a German automaker. But the timeline keeps slipping. And even when it's operational, the processing capacity is a fraction of what China can do. Luna: It sounds like a race where one runner has a five-lap head start and the other is still tying their shoes. Lucas: That's about right. But the shoe-tying is accelerating. The US Department of Defense has awarded grants to Australian and Canadian processors. The EU has classified rare earths as critical raw materials and is stockpiling. So there is momentum — just not enough to close the gap anytime soon. Luna: I want to come back to the Tanzania deal for a second. What's the actual structure? Is it a loan, an equity stake, a joint venture? Lucas: It's structured as a strategic partnership. The Chinese firm — I won't name it because the details are still partly under nondisclosure — is providing a $150 million development loan at a concessional rate. In return, they get the right to purchase 70 percent of the mine's output at market prices for 15 years. Plus, they'll build the processing plant and take a 20 percent equity stake in the mining subsidiary. Luna: So it's a vertical integration play disguised as a financing deal. The Chinese side secures supply, builds processing capacity, and gets equity upside — all without taking on the full mining risk. That's pretty clever. Lucas: It is. And it's a model they're replicating across the continent. If you look at Angola, the Longonjo project has a similar structure: Chinese financing, Chinese engineering for the processing plant, and a long-term offtake agreement. The difference there is that Angola also sells oil to China, so there's a broader trade relationship. Luna: Which brings up the yuan settlement angle. If these deals are denominated in yuan — and many of them are — then China is not just securing minerals; it's also promoting its currency as a trade settlement tool. That's a double win. Lucas: Right. And we've talked on this show before about how China is pushing yuan trade settlements in Africa. But the rare earth deals add a new dimension: they create a closed loop. China provides the loan in yuan, the African government uses that yuan to pay Chinese contractors, and then sells rare earths to China for yuan. The yuan never really leaves the Chinese financial system. Luna: That's basically a currency swap with mineral collateral. It's elegant from Beijing's perspective. And it makes it harder for the US to use dollar-based sanctions as a weapon, because the trade is happening outside the dollar system. Lucas: Precisely. And the timing is interesting. With the US dollar index at 120.5, the dollar is strong, which makes dollar-denominated debt more expensive for African countries. So yuan-denominated loans become more attractive, even if the yuan isn't as liquid. It's a structural shift that favors China. Luna: This actually ties back to something we've been exploring all season — how China is building parallel systems for trade, finance, and now critical minerals. It's not just about one sector; it's a coordinated strategy. Lucas: And that's what makes it so hard for Western policymakers to counter. You can't just throw money at a single mine and expect to compete. You need a whole ecosystem: mining expertise, processing technology, logistics, financing, and a stable regulatory framework. China has been building that ecosystem for two decades. Luna: You know, this is exactly the kind of deep-dive analysis that makes this show valuable — and that we're able to do because we don't have to pander to advertisers. If walking through the economy with us has made something click for you, the best way to support that is through our listener-funded model. It's at buy me a coffee dot com slash fexingo. No pressure, just if you find value in what we do. Lucas: Yeah, and it keeps us independent — we can follow the story wherever it leads, without worrying about upsetting a sponsor. So thanks to those of you who do chip in. It really does make a difference. Luna: Alright, back to rare earths. So if China's strategy is so entrenched, is there any realistic scenario where the West catches up? Lucas: I think the best case is not catching up, but creating enough alternative supply to reduce dependency. If Australia, Canada, and the US can together supply maybe 30 percent of global processing capacity by 2030, that would be a significant achievement. But even that requires massive investment and political will. Luna: And that investment needs to happen soon, because demand for rare earths is projected to grow at a compound annual growth rate of about 8 percent through the end of the decade, driven by EVs and wind turbines. So the pie is expanding, which means there's room for multiple players. Lucas: Exactly. The question is whether Western companies can move fast enough. Right now, permitting alone for a new mine in the US or Australia can take 7 to 10 years. In Tanzania, it took less than 3. That speed advantage is real. Luna: So the race is on. And the next few years will determine whether the critical mineral supply chain remains concentrated or becomes genuinely diversified. I'm skeptical, but I hope I'm wrong. Lucas: I love that — skeptical but hopeful. That's probably the right stance. We'll keep watching the deals, the processing plants, and the yuan settlements. And we'll report back as new developments emerge. For now, that's our take on China's rare earth play in Africa.