Leading article: An elemental challenge for China and the world

Though rare earth elements are not, geologically speaking, all that rare, they are still largely unknown to the general public. That, however, could be about to change. The likes of lanthanum and holmium could soon be names as familiar to us as gold and oil. The explanation is scarcity.

Global demand for these materials is booming, tripling over the past decade from 40,000 to 120,000 tonnes. Rare earth elements are used in a host of technologies from iPhones, to fibre-optic cables, to missile guidance systems. And they are also essential for a swath of low-carbon technologies from catalytic converters, to nuclear power rods; a market that is set to expand exponentially over the coming decades as nations seek to reduce their use of fossil fuels.

Yet one country has a virtual monopoly on the production of these materials. China provides 97 per cent of the global supplies of rare earth elements, most coming from a single mine in Inner Mongolia. By 2014 global demand for rare earth materials is forecast to hit 200,000 tonnes a year. But for several years China has been steadily reducing the amount of material it makes available for export. And as we report today, supplies of Chinese-produced terbium and dysprosium – irreplaceable elements of magnets used in the batteries of hybrid cars and wind turbines – are likely to be cut sharply in the coming months.

In theory, the global free market should dictate supply and demand of a scarce commodity. But China, in common with other powerful nations, does not always play by such rules. Beijing seems keen to hoard materials for its own expected future needs and also to ensure that all raw rare earth material is processed within its borders. China apparently wants to build its share of lucrative rare earth component manufacture market.

This is likely to prove extremely disruptive for the rest of the world. A sudden cut in supply is going to have painful knock-on effects for many high-technology industries in developed countries. The obvious response is to seek other suppliers. And rare earth mines are being developed in South Africa, Greenland and Canada. But these mines are at least five years away from being able to generate a significant level of production. A transition will, of course, be made in time. Yet it could be an extremely painful process.

It need not be this way. There are, it is true, potential short-term gains to be had by China from constricting supply of these valuable raw commodities. But it is certainly not in China's long-term interests to antagonise its trading partners by behaving in this fashion. Nor would it be wise for Beijing to allow the development of low-carbon technologies elsewhere in the world to be retarded by its policies.

China, just as much (if not more) than other nations, stands to reap benefits from low-carbon industrial development. Beijing is a huge importer of expensive oil and increasingly reliant on highly-polluting coal to power its economic growth. And its territory is extremely vulnerable to the malign impact of climate change.

China's stunning economic expansion – the release of hundreds of millions of its people from poverty – over the past two decades has come through harnessing the power of liberated markets. Its rulers would be foolish indeed to jeopardise all that by adopting a short-sighted, beggar-thy-neighbour policy over the commodities that are set to power the modern world.