The Quest For Rare Earth: An Economic Race To Save China's System
Analysis of Potential National Security Risks From China’s US Land Buying
Rachel Brooks
October 09, 2023
Analysis
U.S. lawmakers have motioned to ban Chinese nationals from purchasing land in the United States, as concerns about the Chinese government’s access to U.S. infrastructure and data systems surmount. Concerns are driven by a rise in Chinese-state linked espionage in recent months.
As lawmakers pursue bans, and as the general public becomes more wary of aggressive tactics of the Chinese Communist Party in foreign affairs, human rights groups signal concerns over brewing xenophobia and laws that handicap immigration policy.
Overt Operator set out to investigate the statistics around Chinese national’s property investment in the United States, and what may motivate the Chinese state’s interference in U.S. land buying and mortgaging.
Analysis Key Focus
The following analysis focused on the major resource incentives that would drive the Central Communist Party of China to aggressively target United States domestic land resources and real estate markets.
This analysis focused on the drivers within the current state of Chinese economics that incentivize foreign investment, and why China’s government is motivated to undermine and undercut the competitive advantages of the United States in markets of interest, particularly in the technology sector, which is a center point of friction between the two global superpower states and their respective direct allies.
Contributing Reports from Overt Operator
At the time of this investigation, Overt Operator also covered the pace of China ramping up its production of rare earth metals and calling for unified collaboration between automotive manufacturers in the semiconductor field.
The above news items were economic factors that were considered, in conjunction with the greater picture of U.S. and China clashes over foreign property buying by Chinese entities in the United States, during the analysis process that led to this report.
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Facts Vs. Sensationalism
In the case of Chinese nationals buying land in the United States, data analysis discovered these trends:
China’s Ag Land Buying Limited
While Chinese nationals had doubled their purchases of agricultural land plots from 2009-2019, the parcels purchased by this group were not a statistically large sum, when compared to other foreign investment demographics.
Estimates by the United States government found that Chinese agricultural land parcel ownership in the United States made less than 1 percent of foreign land buying as of 2021, the Cato Institute wrote. Foreign land ownership as a whole in the U.S. agriculture space makes up 3.1 percent of land ownership in the American market.
Chinese nationals, when they do purchase U.S. land, primarily purchase residential properties as part of the United States’ foreign mortgage laws. The U.S. government incentivizes Chinese nationals to apply for EB-5 visas, also sometimes known as “cash for visas” which is an immigration status that is intended to attack foreign investment in a marketplace.
In the summer of 2022, media reports found that China’s foreign investors were buying land in California and New York as the top two destinations, with Florida and Indiana being runners-up. Due to bans proposed by Florida’s incumbent governor, statistics of foreign land investment are subject to transitions.
CalMatters, in a 2018 study that was updated in 2020, noted that “wealthy Chinese investors” who were seeking to “park” their cash, moved some of their residential investments from the bursting market of the Bay Area to the Elk Grove area.
The United States has introduced measures to counter aggressive foreign policy by the Chinese state, including reducing direct investment in China’s semiconductor industry, in favor of the burgeoning market in democratic Taiwan.
The Chinese government maintains a large portion of the fiscal revenue through real estate sales within China. As wealthy Chinese investors attempt to put their money in foreign markets to keep it safe from China’s approaching property bubble, the Chinese government is expected to crack down on citizens, and force Chinese nationals to keep their investments domestic. China may see incentive programs, such as the cash-for-visa incentive program under the Biden administration, as an act undermining the Central Communist Party’s domestic agenda. The undermining of the CCP’s sovereignty over the mainland is something China sees as a direct act of war-like aggression, which can escalate the tensions between the Chinese state and Western powers.
Economic Drivers of U.S.-China Clashes
Realistically, the driving forces of U.S. and China's entanglements over security interests stem from the Chinese state’s global world policy for the massive Belt and Road initiative, and Chinese-centric, aggressive foreign tactics, including the direct encroachment upon intellectual properties, clashes with the American hegemony system, and the massive enterprise the United States has built among foreign partners around the world.
China’s Major Fiscal Provider on the Brink
China’s domestic real estate industry is the major provider for fiscal revenues, J.P. Morgan and Chase analyzed in August. J.P. Morgan and Chase’s estimates found that Chinese domestic land sales accounted for 35% of local fiscal government revenues. Analysis found that employment rates in this space, and the reflection on fiscal revenue, have an impact on the government’s ability to “offset the slowdown” through infrastructure spending.
However, the Chinese domestic real estate sector is on the brink of a major bubble, and subsequent collapse, due to a massive debt problem, western analysts of world economics summarized in recent outlook broadcasts. The Chinese real estate sector’s failings were exposed, in part, by the failings of Evergrande and the Chinese government’s motion to arrest Evergrande executives.
How the Chinese Real Estate Bubble Impacts Foreign Relations
Clashes between the United States and China stem, in part, from China’s need to push ahead with its production boom and overcome the looming downturn the real estate market threatens.
It is also accented by the direct pressure that the central government has as it loses its sway over the Chinese people in the court of public opinion due to the economic downturn and political upheaval caused by recent events.
American media and public thought have voiced the opinion that China’s central party is losing its grip on sovereignty in recent years, adding to the chorus of direct challenges from the democratic West to the idea of “one China.” In November 2022, The New York Times wrote that the Communist Party was losing China’s people.
The Chinese people have been struggling with the “recklessness” of the Xi government since late last year. In September 2022, Foreign Policy noted that the Chinese people no longer appeared to know “the rules” as protests of the mortgage crisis and COVID broke the silence, and that the Chinese public was “floundering” in the confusion of the central party.
As the United States incentivizes an attractive alternative to the philosophic void that the Chinese people as a whole are analyzed to be experiencing as they become jaded with the Xi government, the more China needs to maintain central control over all aspects of economics and social thought. This has prompted crackdowns on Western influence, and a growing sense of anti-American sentiment.
Sinocentrism: China and World Leadership Ambitions
The Chinese leader Xi Jinping announced in 2017 that China had higher ambitions than contending with the American hegemony and competing for the place where a United States presence in the Western Pacific would be reduced, the Carnegie Endowment for International Peace analyzed in 2020. China has ambitions to become the center world power, and as such has driven policies that are less conscientious of risk aversion than Chinese foreign policy in the past.
Concerning Taiwan
This clash has presented itself most directly in Taiwan, where the pro-democratic class continues to push for lasting sovereignty and independence from mainland China. Taiwan recognizes itself as a sovereign nation, and the United States, in keeping with the global American policy of promoting democratic values worldwide, also recognizes Taiwan as a sovereign nation and a direct partner in trade. In doing so, the United States has built up much of its IT infrastructure in the region and has heavily invested in Taiwan’s robust semiconductor industry.
Questions of Sovereignty
However, the People’s Republic of China does not view Taiwan as a sovereign state, but rather views the island as a breakaway republic of mainland China and elects to refer to it as “Chinese Taipei.” The PRC sees the U.S. direct investment in Taiwan’s semiconductor industry as directly undermining the sovereignty of the Chinese Central Communist Party and the Chinese state. This is because China relies heavily on its semiconductor industry as the leading producer of electric vehicles in the world, as of the summer of 2023.
Ilaria Mazzocco, a senior fellow and expert on Chinese business and economics with the Center for Strategic and International Studies, noted the “rapid growth” of Chinese entities in the EV sector, in her testimony before Congress on August 21.
Competitiveness Drivers
Because the Chinese automotive industry has had such rapid growth, leading China to become the leading exporter of automotive products, Chinese competitiveness can be expected to center on properties that would directly support the automotive industry. China’s investments in property, then, would directly reflect the need for rare earth metals and other raw materials that go into the production of automotive components.
China’s competitiveness in this field can be expected to intensify, as Western regulators seek to investigate the state subsidy benefits the Chinese government draws from automotive investments. China can use the strong growth of its booming EV sector as an alternative producer to its suffering real estate sector.
A Clash of Interests
The Chinese government’s interests and the United State’s interests have overlapping clashes. As China presses forward, it has exercised international policies that have clashed with diplomatic norms, calling in massive loans from national debtors of the Belt and Road initiative and using cyber espionage to obtain intellectual property.
As China grows its technological sector and expands its demand for rare metals, it indirectly clashes with the incumbent presidential administration’s interests in the Build Back Better initiative, an initiative to make electric vehicles a widespread and affordable sector of the American transportation industry, and curbing reliance on China for these technologies.
The impact of those interest challenges has led to the Biden administration banning certain technical investments in China, to curb the CCP’s encroachment on international trade regulations of emerging industry.
The Threat To Current World Trade
China’s aggressive stance toward Taiwan, as well as its behaviors towards its debtor nations, poses an existential risk to the current international trade dynamic, the United Kingdom’s foreign secretary James Cleverly warned in a speech on British relations with Beijing in April. Cleverly noted, at that time, that about “half” of the world’s container ships pass through the maritime region surrounding Taiwan.
The Quest for Rare Earth
At this inflection point of technological advancement, the quest for rare earth between the two superpowers, and adjacent world players, acts as the lynch pint of world geopolitical competitiveness and escalations.
Index of Rare Earth Metals
Data independently submitted to Statista by M. Garside shows that, in terms of metric tons, China was the leading nation for rare earth metals deposits in 2022, followed closely by Vietnam, Brazil, and Russia. Garside’s independent data was corroborated by the Investing News Network, in a list of statistics that was updated in September 2023.
Drivers of China’s Foreign Influence Campaigns
China’s push in foreign lands appears to center around its economic incentives, which are led by massive real estate development projects such as the Belt and Road initiative and rare earth extraction incentives.
Some of the leading nations for rare earths have been areas where China has focused its influence in the past, however, these nations do not always have a completely favorable outlook on China. Vietnam, a one-party state with a growing economy, is one such example of this. Research from the Oxford Academic published in 2016 found that China has, in recent history, typically held influence over Vietnam when Vietnam was in a vulnerable state.
Other leading producers of rare earth metals, including Brazil, Russia, and Greenland have favorable relations with China that have, in recent history, stemmed from “mutual economic benefits.”
To understand the potential national security risk drivers of China’s interests in United States agricultural and residential development, Overt Operator analyzed where items of interest to China’s government economic policy overlapped with areas where Chinese nationals had made direct investments.
Overlap of Areas Where China Owns Land, the US Discovered Rare Earths
The below heat map illustrates key areas where Chinese entities have purchased land parcels, that are within the same state and general greater local vicinity of USGS records of rare earth deposits. While foreign nationals cannot directly mine US natural resources, they can set up subsidiary companies in the United States to access these resources. Our analysis finds this adjacent overlap of interests to be a potential driver of the U.S.’s national security concerns over areas where Chinese nationals have purchased land in limited but specific locales of the United States.
Note: This data overlay was made by Overt Operato’s team referring to and comparing available USGS rare earth deposits data with a report published by the USDA AFIDA in 2021 that revealed the percentage of US farm land purchased by Chinese investors and documented at that time. A visually similar map was created by NPR News’ Connie Hanzhang Jin which referred to the USDA AFIDA report and isolated China land ownership in the US to key areas, which can be viewed at NPR News.
This heat map was created by Overt Operator contributor Quinten Epting referencing data from the USGS and the USDA.
First, we looked at the data concerning rare earth deposits in the United States and Americans in general and found that the majority of U.S. rare earth deposits are concentrated in the Midwest, along the border with Canada, and in the Appalachian region.
The land owned by Chinese investors is primarily owned by Smithfield Foods and Sun Guangxin, a Chinese billionaire, who reportedly bought “swathes” of land in Val Verde County, Texas to produce a massive wind farm.
Forbes wrote in 2021 that Guangxin, who has “extensive” ties to the Chinese Communist Party, incurred the wrath of Texas lawmakers with his purchase of large parcels of land in Val Verde County. At that time, Texas called for a government crackdown on allowing “hostile” nations to have access to the electric grid in the region.
Reporters with WKAR, NPR, and PBS, in a report published on June 26, analyzed data from the United States Department of Agriculture Farm Service Agency, that was compiled in 2021 and found that the majority of Chinese-owned land in the United States was concentrated in the Midwest Region, especially Texas, New England, the Appalachian region and Florida.
The reporters with NPR isolated the data and compared the counties. In Texas, for example, Chinese investors owned land in Val Verde County, an area in Texas was Magnesite and Magnesium have been historically mined, the Texas State Historical Association wrote.
Magnesium products have been used in electric car battery innovation research, as researchers attempt to understand further the production of vehicles that put off zero emissions.
China’s interests in obtaining rare earths and mass electric vehicle production are directly tied to its push to be the dominant force of electric vehicle production.
As this interest directly clashes with America’s push for domestic electric vehicle enterprise and a “decoupling” of ties and dependency on China for technological production, the Chinese Communist Party’s in U.S. and American continental energy production materials directly undermines United States sovereignty, adding to the ongoing threat of escalation between the two world superpower economies.
Foreign Access To U.S. Minerals
Laws are in place that limit foreign entities from accessing mineral resources in the United States directly. However, foreign-owned enterprises may form subsidiaries to secure mining rights, International Comparative Legal Guides explained in the guidebook for 2024, which was published in September 2023.
The ICLG guidebook explained that, while current U.S. legal guidelines require mining to be conducted by U.S. citizens or U.S. entities, qualifying U.S. entities may be wholly owned by non-US entities and corporations.
This creates the legal loophole that would be necessary for Chinese nationals to access rare earth metals in the United States through U.S. subsidiary companies, which, in turn, would limit the U.S. agenda to decouple from China's dependency on the production of rare earths and thus put a strain on the American government’s push for domestic wholesale adoption of American-made electrical energy trade.
Saving a Sinking Ship
Despite the gains of its domestic electric vehicle market, western economists feel that, without drastic measures, the Chinese state is sinking into collapse.
The Chinese state has been in turmoil since the years before the pandemic saw Hong Kong’s repeated protests. China is now falling prey to its housing crisis, as a debt bubble looms to threaten the 40-year boom of growth, a status that world analysts have noted may already have come to an end.
As the Chinese debt crisis looms, Xi rattles sabers in Taiwan’s direction, something financial analysts find lacks precaution.
Xi is prioritizing absorbing Taiwan back into the centralized government above the cost that would come from the conflict because world trade with Taiwan as a sovereign nation and not part of the Chinese central whole is viewed by the Chinese central government as a direct threat to its sovereignty.
Taiwan may also be outpacing China in the semiconductor market, a fact that adds grievance to China’s national identity, and the fact that China’s market is struggling under the massive weight of the nation's debt and failure to rebound healthily.
China’s production appears to be improving and gaining but its debt is not recovering, and so the geopolitics of that fact, and being caught in the “geopolitical trade winds” may force the central government’s hands in ways that are more aggressive than its previous calculations.