As countries worldwide strive to transition to a green economy and meet the rising demand for EVs, a palpable fear looms that China could leverage its lithium monopoly as a geopolitical tool. With projections indicating a staggering demand of more than three million metric tons of lithium batteries by 2030, the consequences of such leverage could be profound. This article analyses the strategic dominance of China over lithium’s supply chain, fault lines in China’s monopoly over lithium’s supply chain and its future dynamics.

In the rapidly evolving landscape of clean energy and electric vehicles (EVs), China has emerged as a formidable player, wielding unprecedented control over the global lithium supply chain. Out of the world's top ten lithium-ion battery manufacturers, six are Chinese companies, further underscoring China's pivotal role in this critical sector. This dominance, fueled by strategic government support and meticulous vertical integration, has positioned China as the epicentre of lithium-ion (Li-ion) battery production and refining. Despite holding less than 7 percent of the world's lithium reserves, China has managed to secure an 80 percent share of global lithium chemical production, 78 percent of cathode production, and a staggering 70 percent of cell manufacturing for the electric car industry. In 2022, China held a staggering 75 percent of global battery manufacturing capacity. Notably, Chinese company Contemporary Amperex Technology Co. (CATL), the world's largest battery manufacturer, alone commanded a substantial 35 percent share of the global lithium-ion battery market during the first quarter of 2022. Now, the country's insatiable appetite for lithium has triggered a global rush for mining and processing, raising environmental concerns and geopolitical tensions. As countries worldwide strive to transition to a green economy and meet the rising demand for EVs, a palpable fear looms that China could leverage its lithium monopoly as a geopolitical tool. With projections indicating a staggering demand of more than three million metric tons of lithium batteries by 2030, the consequences of such leverage could be profound. This article analyses the strategic dominance of China over lithium’s supply chain, fault lines in China’s monopoly over lithium’s supply chain and its future dynamics.

Unravelling China's strategy of monopolization

Domestically, in the three phases of China's new energy vehicle battery (NEVB) industry development, spanning from the mid-1990s to the present day, key policies and initiatives have played a crucial role in shaping the trajectory of the lithium-ion battery industry. Before 2009, the emphasis was on developing domestic technological capabilities through targeted research and investments, as seen in the 10th and 11th Five-Year Plans and the 863 national high-tech projects as well as the invested public funds which went into research and development. From 2009 to 2014, a shift occurred towards systemic promotion of new energy vehicles (NEVs) and industry-specific policy experimentation. The Strategic Emerging Industries (SEI) program in 2009 marked a high-level policy shift towards cultivating markets for emerging industries, moving away from state-funded science and technology activities. The Made in China 2025 (MIC 25) strategy and the Battery Whitelist introduced in 2015 by the Chinese government under which, subsidies were reserved for domestic battery producers which marked a turning point for the battery industry in China. This new subsidy-centric focus prompted policy adjustments, which introduced fresh funds for mining, resources exploration and processing machinery.

Surprisingly, despite the ample supply of raw lithium globally, China has successfully secured a monopoly in the lithium market. The reason is off-take contracts, which have enabled China to use the economic dynamics of lithium processing plants to its advantage. Processing plants, which have a scale much larger than individual mines, necessitate off-take contracts between mines and plants for a steady supply. This creates interdependence, with processing plant owners often providing capital for mine development. Most processing plants are Chinese-owned, fostering vertical integration as they hold significant stakes in various mines. This concentration extends to salt brine operations and clays, as seen in the involvement of Chinese companies like Ganfeng in projects like Thacker Pass in the United States and many other mines around the world.

China has strategically addressed the infrastructure development funding gap among developing countries and cash-strapped governments, with its “going out” strategy, by capitalizing on investments linked to the surging global demand for lithium. This comprehensive integration of supply chains, allows China to source lithium from supplier states, leading the battery technological advancements, and positioning itself as a dominant force in both upstream and downstream markets for EVs. This strategic move became apparent when Afghanistan, which      houses potential lithium reserves equivalent to that of Bolivia's, witnessed a significant influx of Chinese investments following the discovery of exploited mineral deposits, worth nearly $1 trillion in 2010. Chinese investments in lithium-rich countries like the "Lithium Triangle" (Argentina, Chile, and Bolivia) will allow it to further vertically integrate the supply chain for lithium-ion batteries. The Chinese government is aggressively pursuing the acquisition of materials crucial for the global green energy transition. The trend is supported by the establishment of a strong domestic supply chain which is providing China with the momentum to extend its influence over key materials and related industries. While other countries are recognizing the importance of minerals like lithium, Chinese firms have been the most proactive in pursuing acquisitions, particularly in regions like Africa and Latin America. The scale of China's involvement in the lithium market is evident in its dominant role in major mergers and acquisitions (M&A) deals since 2018. Chinese firms have been the driving force behind all significant lithium M&A transactions valued over US$100 million, acquiring a substantial portion of lithium mines, amounting to approximately US$7.9 billion. This has further led many countries to become increasingly dependent on China for investments and funding, which has presented challenges for other nations seeking to compete in the global lithium market.

Despite this monopoly, China faces significant challenges in achieving self-reliance in lithium production. Although China has substantial domestic lithium resources, the majority of China's lithium reserves, approximately 86.8 percent of lithium brine and 60.6 percent of lithium ore, are concentrated in the ecologically vulnerable Qinghai-Tibetan Plateau. Extraction from these high-altitude arid and semi-arid regions is complicated by harsh conditions and underdeveloped infrastructure, posing significant obstacles to lithium production. Moreover, China's lithium industry is distributed across challenging terrains. The hard rock lithium mines in western Sichuan face unfavourable conditions due to alpine and remote locations, while salt lake brine-type lithium mines in the Qaidam Basin have a high magnesium-to-lithium ratio, and their extraction technology is not fully mature. Despite having 73 lithium mining  areas, including 59 hard rock lithium mines and 14 brine lithium mines, geographical constraints, technological limitations, and poor development conditions hinder large-scale production. Due to these factors, China’s dependence on imported lithium is set to rise for many coming years.                                        

Furthermore, China’s dependence on Lepidolite ore to boost domestic production of lithium is a risky wager. Plans for Yichun to become the “lithium capital of Asia” on basis of lepidolite lithium deposits were first announced in 2008 but betting on lepidolite as a prominent source of lithium production to achieve self-reliance in China appears to be a risky proposition for several reasons. While there is optimism that lepidolite resources will take up 15 percent of the global supply in coming years, separating lithium from lepidolite can cost as much as 100,000 yuan per metric ton, significantly higher than brine and spodumene extraction methods. Moreover, the extraction of lithium from lepidolite ore is hazardous for the environment as extraction and smelting produces toxic by-products like thallium and tantalum, causing severe water pollution. Yichun authorities have found toxic substances in the Jin River, raising questions about the environmental impact. The production suspension at a subsidiary's plant in Yichun due to abnormal water quality highlights the potential risks associated with lepidolite extraction. Moreover, by 2025, if Yichun achieves its production target, it would generate about 10 million tons of tailings, significantly exceeding the current tailings handling capacity in the region. The environmental cost of such large-scale production is a cause for concern, especially as environmental supervision becomes stricter. Therefore, without phenomenal research and development in the area, large-scale and sustainable extraction of lithium from lepidolite is yet a distant dream for China.

The extraction of lithium has led to irreversible damage to ecology. Production of one ton of lithium in Chile necessitates up to 2,800 cubic meters of water, a stark contrast to the 70 cubic meters required for the production of one ton of copper. Chinese investments in lithium mining have raised significant environmental concerns making extraction of lithium for green energy an “environment paradox”. Lithium extraction firms, positioned the upstream of the supply chain, are essential for the production of lithium-ion batteries, influencing the environmental and carbon footprint of the final products. Extraction methods, such as evaporation from brines with higher lithium content, result in the production of substantial waste, with every tonne of lithium carbonate generating about 115 tonnes of waste. The extraction of lithium from brines in South America, particularly in Chile, has raised concerns about water supplies and environmental impact. The process involves pumping brine from the aquifer, causing surrounding freshwater to flow inwards, potentially leading to water shortages for local communities. Projects in Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Venezuela have been associated with significant ecological impacts, including damage to watersheds, pollution, and interference with river flows. Projects like the BYD lithium project in Chile and Ganfeng l ithium's project in the Argentine province of Jujuy faced opposition due to concerns about pollution and the impact on ecology and local livelihoods.

Moreover, the complications faced by projects navigating through conflict affected regions, and alleged human rights violations of workers involved in lithium extraction is also a major issue. The conflict affected region like Democratic Republic of Congo, has given rise to a pervasive culture of corruption and exploitation, particularly within the mining industry. Armed groups have forcefully taken control of numerous mining sites, resorting to coerced labor and violence to extract and trade minerals, mineral smuggling and military involvement have persisted. This situation has significant implications for the litihium supply chain, with the potential for disruptions when minerals are sourced from regions with a history of conflict or human rights abuses. The DRC, believed to house the world's largest lithium deposit with an estimated 6.6 million tons in the vicinity of Manono, stands at the epicenter of the green energy revolution. However, the ongoing conflict has hindered the development of vital infrastructure needed for critical mineral mining. Chinese companies are alleged of severe human rights violation in the region, lack of transparency, inadequate impact studies, and insufficient community consultation in lithium mining projects, underscoring the urgent need for responsible and sustainable practices in the lithium supply chain. Notably, China has opted for ‘mercantilist' tactics to safeguard its interests in the region; in several Central Asian and African countries, there have been frequent violent episodes between Chinese miners and the local inhabitants. Chinese firms in these countries were established on terms of preferential deals by the requirement that at least 70 percent of their tasks were performed by their own employees, usually prisoners or recruits’ and have also deployed army to protect its assets. In this regard, Beijing has also failed to consolidate small illegal miners which makes the supply chain very fragmented.

Future dynamics of China dominated Lithium supply chain

The future of the lithium supply chain is poised for significant transformations and competition, prompting speculation about the establishment of a Lithium Producing and Exporting Countries (LPEC) organization akin to OPEC (Oil and Petroleum Exporting Countries). This hypothetical organization could wield considerable market influence, acting as a lithium cartel to coordinate production levels and control global prices. China, with its current dominance in the lithium global economy, is seen as a potential leader in this LPEC-led future. Moreover, the evolving landscape of lithium geopolitics notably aligns with the capitalist peace theory, wherein the mutual benefits arising from interdependencies create a scenario where conflicts become more costly. Suppose China persists in its trajectory as an uncontested monopoly in the lithium market. In that case, there is a potential for enforcing its assertive "wolf warrior diplomacy" tactics on smaller nations reliant on China for lithium imports and lithium-ion battery exports. However, it will be intriguing to observe how nations navigate this situation and seek to establish more equitable contracts with China that can lead China to develop its extraction industry within its borders. This dynamic reflects the delicate balance between dependence on China for crucial funds and resources and the need for fair and balanced agreements that promote mutual benefit. The outcome of such negotiations will play a pivotal role in shaping the future dynamics of global lithium geopolitics. Notably, recycling lithium can become a gateway for China to explore self-reliance, with lithium batteries typically lasting five to eight years, and a growing number is      reaching the end of their life cycle. By 2022, the capacity of decommissioned batteries in China reached 34.5 gigawatt-hours (GWh), and this is expected to rise to 116 GWh (approximately 780,000 tonnes) by 2025. The disposal of these batteries poses environmental risks due to the presence of harmful substances. Moreover, the demand for new batteries, driven by the EV industry's growth, intensifies the need for efficient recycling to reduce dependence on imported raw materials such as nickel, cobalt, and lithium. Despite early recognition by the Chinese government of the importance of battery recycling, China is yet to establish a mature recycling system. These obstacles and a lack of specific measures have allowed a black market of small workshops to emerge, creating challenges for compliant businesses. The mandates like European Battery Regulation, and regulations to recycle batteries can be the template for recycling industry in China. As China is the largest producer of batteries and the largest EV market globally, these regulations could drive the industry toward more sustainable practices and reduce dependence on imported metals. Recycling could also play a crucial role in stabilizing supply chains and mitigating the environmental impact of mineral extraction.

Domestically, China will also have to address the quasi-monopoly established with respect to its own lithium industry. The recent heated competitions in Sichuan set the stage, with winning bids reaching staggering heights. Inner Mongolia Dazhong Mining Co. secured the Barkam mine with a bid over 1,300 times the starting price, and a Sichuan Energy Industry Investment Group subsidiary paid nearly 1,800 times the opening price for the second mine in Jinchuan county. This shows that the future financial dilemma is going to be faced by the Chinese battery companies and automakers is going to be undoubtedly exacerbated by speculative price hikes and bidding wars overseas which will make lithium’s value chain very volatile.

Lastly, China will hold the center stage in formulating international policies for lithium supply chains as it did for  global policies surrounding rare earth metals (REEs), employing various strategies that would reverberate throughout the entire lithium supply chain. China’s involvement in the World Trade Organization (WTO) has led to both positive and negative consequences, affecting prices but ultimately improving the resilience of the global supply chain. China's influence also extends to international standards through standardization in the field of rare earth      elements (REE), ISO/TC 298, which underscores China’s control of the REE market. Importantly, China's imports of REE compounds will continue to alter the global supply chain by reducing the availability of the same for non-Chinese entities and state-sponsored stockpiling by China will continue to induce a disruptive element into the supply chain, allowing for price manipulation and potential supply disruptions which will adversely impact the small businesses in the field of green energy. Meanwhile, China will vehemently pursue technological innovations to overcome its limitations in exploiting the lithium resources domestically. Akin to the photovoltaic industry supply chain model, China will ensure reliable and steady access to lithium resources as its lithium-ion battery-producing companies heavily depend on imported lithium as a resource.


The international community will have to reclaim the midstream of the lithium supply chain otherwise, small-cap to large-cap enterprises striving to promote green technology will not have bargaining power as they will be completely dependent on Chinese companies for the supply, making it impossible for these companies to compete with the dominant drivers of China like generous loan credits and subsidies, strategic initiatives on rare earth metals. In the same vein, the strive for exploring alternatives to lithium-ion batteries will be pushed forward. In a futuristic landscape dominated by technological evolution and geopolitical shifts, the lithium and rare-earth elements supply chain faces multifaceted challenges. The current overemphasis on lithium battery production capacity, fueled by massive investments, has resulted in excess supply, surpassing the escalating demand for electric vehicles (EVs) and has resulted in reducing the spot price of lithium. The repercussions of overproduction due to consumption and production imbalance extend beyond environmental degradation, affecting market dynamics. As battery prices face downward pressure, larger manufacturers maintain higher capacity utilization rates, leaving smaller businesses vulnerable to closures and job losses. The global impact of China's oversupply looms large, potentially disrupting the EV market's balance and intensifying international competition. Against this backdrop, nations like the United States should strategically manoeuvre to reduce dependence on Chinese REEs, adopting measures such as stockpiling, revisiting policies, and fostering international collaborations to secure an alternative, sustainable supply chain for critical minerals. The urgency to collectively address these challenges and make the supply chain efficient is underscored by the evolving global landscape and the imperative to navigate a path toward sustainable energy transitions.


Riddhima Singh is a final year student at Jawaharlal Nehru University Delhi, pursuing Chinese Honours course. Through her degree she has had the opportunity to dive into culture, history and contemporary issues in Chinese society through language and research. Her research area surrounds the economic and fiscal policies of Communist Party of China and China's development model.

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