China’s Lithium Battery Economy: A Political Analysis

According to the World Bank’s December 2023 data, China’s growth was 5.2 percent in 2023. In this regard, future more sustainable growth will depend on stronger consumption growth. One of the highlights of the first half of 2023 was the recovery in consumption; this contributed 77.2 percent to growth, with a 44 percentage point increase over the previous year. It is noteworthy that people spend more money on services. (World Bank, 2023)

As production becomes more qualified, vehicle technology in particular brings new innovations along with it. Energy use and state energy policies have a large share in influencing future economic balances in terms of meeting the needs of developing technology. At this point, oil and natural gas giants are looking for alternative minerals beyond fossil fuels as hopes for technological breakthroughs that will produce the metal that is extremely important for electric car batteries increase.

As discussed at the COP26 climate summit, it is now known that green energy is more economical, sustainable and environmentally friendly than fossil fuels. Copper, nickel, cobalt and lithium prices, metal demand explosion, metal production value can lead to more than four times increase and these four metals can reach a total of 13 trillion dollars trade volume in the next twenty years. This could rival the value of estimated oil production in the same period in the net zero emission scenario. Moreover, these four metals can become macro-related for inflation, trade and production and provide significant opportunities for commodity producers. As the globe moves away from fossil fuels, China, especially China’s need for lithium mineral and its stake in the economy is increasing every day as it hosts the world’s largest market in vehicles powered by new energy sources.

The importance of China’s lithium industry in the country’s economy cannot be ignored. China’s lithium industry plays a significant role in the country’s economy, with impacts on both local and global markets. China’s lithium industry contributes to its economic growth through various channels. One of the biggest impacts is the production and manufacturing of lithium batteries for electric vehicles. While China continues to hold about 14 percent of the global lithium export market, China’s exports of electric vehicles, lithium-ion batteries and solar cells increased by 61.6 percent in the first six months of 2023. As domestic demand continues to revive, China will also import more. (Rapier, 2022)

As the demand for electric vehicles increases worldwide, China’s lithium industry has positioned itself as a major player in the global market for lithium-ion batteries. The lithium sector is expected to experience a large growth in the next decade. Especially as a result of the increased sensitivity worldwide in recent years to reduce greenhouse gas emissions, the importance of cleaner energy sources and electric vehicles increases the demand for lithium significantly. US car manufacturers aim for 40 to 50 percent of new vehicle sales to be electric vehicles by 2030. This will also increase lithium consumption. (Chen & Wang, 2019)
China possesses more than half of the world’s refining capacity, while imports account for around two-thirds of the raw material.Australia, Chile, and Argentina account for over 80% of raw lithium extraction from salt pans, rock, and clay, with much of it shipped to China for processing. Because of its reliance on imports, China’s battery sector is occasionally hampered by variations in raw material costs, and the prices of some elements are extremely high due to strong demand and a production shortfall. In turn, Chinese corporations have made direct investments in lithium reserves in South America, Australia, Canada, and Africa. Australia produces 47% of the world’s lithium, but sends 90% of it to China for refining automobile and cell phone batteries. (Smith, 2023)

Lithium batteries used in electric vehicles have become the center of creating a fossil-fuel-free economy due to their storage capacities, safety and uninterrupted flows. Although the increasing demand leads to an increase in lithium commodity prices, as a result, lithium has emerged as one of the most important minerals in the global energy market and is often referred to as ‘white oil’ to reflect its nature. While many countries are striving to secure their supply and increase their production capacity, China has already gained a significant advantage with its domestic and foreign policy. Accordingly, China responds to the domestic resource scarcity by investing in economic lithium reserves in other countries with the help of China’s Belt and Road Initiative (BRI) and secures future supply to meet the increasing demand for electric vehicles and lithium batteries. China has 7.9% of the world’s lithium reserves. The US has 4.0%. Yet China became the world’s 3rd largest lithium producer in 2020, leaving the US behind by more than 15 times.
According to the views of economy analysts, in the future, as oil resources become exhaustible, country economies will become more dependent on lithium mineral. Therefore, it may become necessary to establish a Lithium Producing and Exporting Countries (LPEC) organization with the logic of OPEC (Oil and Petroleum Exporting Countries). (Ali, 2023) Such an international organization, given China’s leadership potential, could increase international competition and political conflict, especially along the US axis. Another thesis is that Western countries who want to benefit from China’s lithium processing industry and experience will adopt a more collaborative attitude towards possible economic cooperation agreements.
In addition, China invests in the innovation and diversification of the lithium industry and the facilitating roles of cooperation with other countries, focuses on developing advanced battery technologies and recycling strategies, and offers new areas for lithium with traditional battery use. Thus, it aims to reduce its dependence on raw lithium extraction and create a more circular, sustainable economy for lithium resources. Among the policy applications based on lithium, active investment is made in the research and development of alternative extraction technologies that cause less harm to the environment. This supports innovative methods such as extracting lithium from saltwater pools and geothermal sources, which have a lower environmental footprint compared to traditional mining techniques. (Agusdinata, 2018)

China is the dominant player in the world lithium-ion battery production. In 2020, about 80% of the total lithium-ion battery production took place in China. It is estimated that European countries will rapidly increase their production capacities in this field and will have a quarter share of the total world production by 2025. In response to the environmental impacts of lithium mining, the Chinese government has implemented strict regulations and sustainability initiatives to mitigate the adverse effects. These measures include responsible mining practices, waste management and requirements for the rehabilitation of mining sites to minimize environmental degradation.

The Chinese government’s prioritization of critical minerals means that they will find new support for economic expansion. China is expected to maintain its position as the world’s largest lithium-ion battery producer in the next decade. Looking ahead, the future outlook of China’s lithium industry is closely linked to the country’s economic growth. As China continues to invest in renewable energy and electric vehicle technology, lithium will remain a critical component for sustainable development goals.

REFERENCES

Ali, S. Z. (2023). China Takes Charge: The Politics of the Lithium Battery Economy. RSIL. https://rsilpak.org/2023/china-takes-charge-the-politics-of-the-lithium-batteryeconomy

Datu Buyung Agusdinata (2018). Socio-environmental impacts of lithium mineral extraction: towards a research agenda, Environ. Res. Lett. 13.DOI 10.1088/1748- 9326/aae9b1

Feng, X. (2023). The Chinese economy is doing better than you might think. Opinion, The Washington Post. https://www.washingtonpost.com/opinions/2023/08/30/chinaambassador-economy-status/

Hao, H., Liu, Z., Zhao, F., Geng, Y., & Sarkis, J. (2017). Material flow analysis of lithium in China. Resources Policy, 51, 100-106. https://doi.org/10.1016/j.resourpol.2016.12.005

Rapier, R. (2022). How The U.S. Is Losing The Lithium Industry To China. Forbes. https://www.forbes.com/sites/rrapier/2022/01/11/the-us-is-losing-the-lithium-industryto-china/?sh=7a1959be16a1

Smith, M. (2023). Race to break China’s lithium stranglehold heats up. Fiinancial Review. https://www.afr.com/world/asia/race-to-break-china-s-lithium-strangleholdheats-up-20231002-p5e96y

Song, J., Yan, W., Cao, H., Song, Q., Ding, H., Lv, Z., Zhang, Y., & Sun, Z. (2019). Material flow analysis on critical raw materials of lithium-ion batteries in China. Journal of Cleaner Production, 215, 570-581. https://doi.org/10.1016/j.jclepro.2019.01.081

Sustained policy support and deeper structural reforms to revive China’s growth momentum – World Bank Report (2023). https://www.worldbank.org/en/news/pressrelease/2023/12/14/sustained-policy-support-and-deeper-structural-reforms-to-revivechina-s-growth-momentum-world-bank-report