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The Chinese Investment that Could Boost Chile’s Lithium Boom – and Help Climate Change, Too

A Chinese firm wants to invest billions, but has met resistance.
Workers take samples of salt brine in the Salar de Atacama, Chile.
Oliver Llaneza Hesse/Construction Photography/Avalon/Getty Images

Such are the riches to be found in them, that the Andes mountains have been described as a gigantic open pit mine.

Something similar can be said of the Atacama Desert in Northern Chile, the driest in the world and home to several coveted global commodities. The previous century saw interest in its nitrates, and more recently the Atacama has been touted as an exceptional source of solar energy, capable of generating all of Chile’s electricity needs and more. Now, lithium, which has been called the “gold of the 21st century,” is drawing further international attention – and may become Chile’s strongest answer yet to tackling climate change.

Lithium is a key ingredient of the batteries needed not just for electric vehicles, but also for the storage of intermittent sources of energy such as wind and solar. From 2013 to 2017, the average annual price of lithium in the U.S. doubled to $13,900 per metric ton, and demand for the mineral is likely to increase with the growth of the global battery industry reaching close to $70 billion by 2022.

More than half the global supply of lithium is located in three countries: Argentina, Bolivia and Chile. Argentina has pursued various joint ventures in its Jujuy province, accounting for 6 percent of global production in 2016; and while Bolivia has lagged far behind, Chile’s Salar de Atacama provides nearly 40 percent of global production. At a time when climate change is already with us, Chile can represent a natural laboratory for various forms of non-conventional renewable energy, while also helping to boost research and development of future technologies.

With only 12 years remaining to drastically reduce our dependence on fossil fuels and keep global warming to a minimum of 1.5 degrees Celsius, Chile’s ability to rapidly expand its lithium production is crucial. With such a tremendous challenge on the table, the prospect that Chile could leverage its natural resources with other complementary industries represents an opportunity to industrialize, while further supporting efforts to decarbonize transportation systems and national grids worldwide.

While Chile does not have the technology to do this on its own, perhaps it soon could.

The Sichuan-based firm Tianqi Lithium Corporation is in the process of purchasing a 24 percent stake in Chilean company SQM, one of the world’s largest lithium producers, from Canadian shareholder Nutrien for a whopping $4.1 billion. Such an investment could be the tip of the iceberg for future Chinese investment in Chile’s lithium sector, opening the doors to possible joint ventures in the production of lithium batteries and even electric cars.

But domestic pressures threatened to derail the deal. CORFO, Chile’s economic development agency, asked regulators to block Tianqi’s purchase of Nutrien on grounds that it would give the Chinese too large a share of the global lithium market. Meanwhile, SQM’s principal shareholder, Julio Ponce Lerou, has opposed any potential joint ventures or arrangements that might dilute his control of the company. The former son-in-law of dictator Augusto Pinochet secured the rights for the lithium rich area in the Atacama desert back in 1995 and has since appeared averse to pursuing a longer-term vision.

Given China’s leading position on solar energy, electric vehicles and lithium ion batteries, one would think that the deal would have been a marriage made in heaven. Chinese direct investments in Chile already trail those of its neighbors, and the Tianqi deal could help change this trend, potentially positioning Chile to take advantage of China’s stake in its nearly 60 percent share of global lithium-ion battery production.

The sheer size of the Chinese market and its desire to decarbonize its transportation system should be an attractive feature for Chileans wishing to join a growing multibillion-dollar industry. The country needs international partners that can help further expand lithium production for the world market, while also offering to transfer technology and connect Chilean firms to valuable global supply chains.

The United States is likewise a valuable partner in these efforts given its vast capabilities in research and development. Tesla’s ever-watched CEO, Elon Musk, just visited Chile late last year. Unfortunately, the U.S. currently lacks credible policy leadership in merging the need for renewable energy technology with the paramount challenge that climate change represents. Without a strong change in direction from the U.S. in its pursuit of renewable energy production, it is probable that Chile will join with the multitude of countries pushing ahead, recognizing the urgency for action that climate change demands.

Over the past 30 years, Chile has done very well. Per capita income has increased five-fold, to nearly the equivalent of $25,000 in purchasing power terms, amongst the highest in Latin America. The poverty rate fell from an astonishing 39 percent in 1990 to 9 percent in 2017. Yet, the economy remains stuck on its traditional dependence of commodities. Half of Chile’s exports result from its copper mines. The only way for Chile to make the leap into a fully developed nation is by adding more value to the natural resources it exports, something that Australia, New Zealand and Nordic countries have all accomplished. Otherwise, Chile may be stuck in the middle-income trap.

Despite Ponce Lerou’s best efforts, the courts have found the complaints related to the global lithium market inadmissible, marking a path forward for the SQM minority stake purchase by Tianqi. This large deal represents a new opportunity for Chile. Future efforts should focus on how to leverage further investment for manufacturing as well as research and development of innovative technologies.

This latest act in South America’s lithium drama underlines a critical moment for our planet that should be addressed. Increasing the production of lithium is but one, small way forward to lowering global carbon emissions. Chile can play an important role, while also making headway in its own, badly needed industrialization.

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Jorge Heine is a public policy fellow at the Woodrow Wilson International Center for Scholars in Washington, D.C. and a former ambassador of Chile to China. Anders Beal is a program assistant in the Wilson Center’s Latin American Program.

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Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Chile, Atacama, Lithium

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