Beijing is building a high-tech economy based on domestic resources, even though the lithium self-sufficiency strategy brings enormous financial and environmental costs. Chinese cities like Yichun are transforming from poor regions into centers of critically important raw materials, reflecting President Xi Jinping’s ambitions to build a resilient economy independent of Western imports.
Why China Risks Loss-Making Lithium Business Despite 90% Price Collapse
Lithium prices have fallen nearly 90% since 2022, forcing miners from Australia to Chile to cut production. In China’s Yichun, however, mining continues relentlessly despite most operations running at a loss. The reason is strategic energy security priority and the pursuit of technological self-sufficiency.
The city of Yichun with five million inhabitants has become a lithium metropolis thanks to lepidolite deposits – a mineral with very low lithium content. Although lepidolite processing economics make no commercial sense, it helps China achieve strategic independence.
- Global lithium market: Demand will more than double by the end of the decade compared to 2024
- Chinese lepidolite production: Increased twenty-fold since 2020, another doubling expected by 2030
- Costs: Chinese lepidolite assets are among the most expensive in the industry according to CRU Group
How China’s Vertical Integration Strategy Works in the Lithium Industry
Battery giants CATL and Gotion High-Tech built production facilities in Yichun and the government acquired stakes in mining partnerships. This vertical integration allows companies to operate loss-making mines because they generate returns in other parts of the supply chain.
The refinery owned by CATL and Jiangsu Lopal Tech processes hundreds of truckloads of ore daily. Lepidolite is crushed, chemically processed at high temperatures and centrifuged to create lithium carbonate for batteries.
Environmental Challenges: Toxic Waste and Water Source Contamination
Lepidolite processing creates significantly more waste than other lithium sources and is more energy-intensive. Waste from the refining process often contains thallium – a heavy metal that can be lethal when consumed.
In 2022, environmental authorities detected abnormally high thallium levels along the Jinjiang River. At least five refineries discharged wastewater with excessive thallium content.
- Waste production: The industry will produce approximately 10 million tons of lithium processing waste in 2025
- Control measures: Local authorities test groundwater up to once monthly
- Additional costs: Better waste management reduces already thin margins
Geopolitical Reasons: Response to Trade Wars and Energy Security
Strategic concerns have occupied Beijing for decades, long before the US began expressing concerns about access to key metals. China dominates battery and electric vehicle production but has modest lithium reserves and relies on imports from Australia and Chile.
Addressing this vulnerability is crucial for Beijing’s ambitions to replace traditional manufacturing with higher-value high-tech sectors. With Donald Trump’s return and escalating trade wars, this priority has intensified further.
Future of Chinese Lithium Industry: Long-term Strategy
Companies are looking to the future – electric vehicle sales will rise significantly in coming years. Securing market share today may be beneficial despite current losses.
China is diversifying sources. Besides Yichun, there are deposits in Xinjiang and Sichuan. China Geological Survey identified over 10 million tons of additional resources in January 2025.
- Strategic imperative: According to experts, this is a critical period for strengthening lithium self-sufficiency
- Vertical integration: The path of BYD and others – from mining to final product
- Global expansion: Chinese investments in lithium projects in Africa and elsewhere
Yichun’s transformation from one of the poorest regions to a technology center shows how China pursues strategic priorities regardless of short-term economic losses. For Beijing, lithium self-sufficiency is an investment in the future of a high-tech economy.
