The Dark Side of China's Rise: Global Automakers Held Hostage

Japan Learns The Hard Way About Dependence on China

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TOKYO ( -- Japan just learned the hard way about the dark side of its dependence on China.

Diplomatic tensions flared in September when the two Asian neighbors revived their longstanding dispute over who owns a spray of tiny uninhabited islets in the East China Sea.

Hans Greimel
Hans Greimel
Japan Coast Guard cutters collided with a Chinese fishing boat in the disputed waters and arrested the ship's captain. China was furious.

Normally a territorial spat between global trading powers wouldn't devolve into a ruthless strike at one of the neighbor's key economic interests--in this case, Japan's auto industry.

But apparently that's not how China Inc. plays the game.

Among Beijing's protests, which included the "postponement" of the Chinese debut concert by Japan's most famous boy band, was the halt of rare earth metal shipments to Japan.

These minerals, which include such elements as neodymium and dysprosium, are critical to the electric motors, glass coatings and electronics used in today's automobiles, especially hybrids.

The problem: China controls more than 90% of the world market for rare earth elements. So when they turn off the tap, companies like Toyota Motor Corp. and Honda Motor Co. really feel it.

Sure enough, Japan soon released the skipper. Despite Beijing's denial that it ever halted exports in the first place, traders told journalists that shipments magically resumed.

The lesson for Japan was clear: Dependence on China carries plenty of hidden costs.

Toyota saw the writing on the wall. This summer, it reportedly set up a task force to explore alternative sources of rare earth metals to break the chain to China.

But the incident is a sober warning that an increasingly assertive China can play hardball.

Hans Greimel is Asia editor of Automotive News, a publication of Crain Communications, which first published this article.

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