$350 million investment for electric car venture

In the race to build hybrid cars and wind turbines to feed growing demand for green technology, China has one clear advantage, it holds the world's largest reserves of rare earth metals and dominates global production.

Wind turbines, made by No.2 wind turbine maker Xinjiang Goldwind Science & Technology, and hybrid cars, being developed by Warren Buffet-backed Chinese automaker BYD are among the biggest guzzlers of rare earth minerals, which analysts say are facing a global supply crunch as demand swells.

China controls 97 percent of rare earth production.

"Rare earth for China is like oil to the Middle East," said Yuanta Securities analyst Min Li.

"Export restrictions may provide an advantage to Chinese turbine makers, again because of the cost advantage," said CIMB analyst Keith Li.

He said Chinese green companies would have priority in securing supply of the metals over international peers and their proximity to sources of the minerals ensures quicker and cheaper long-term supply.

China's trading partners have grown increasingly vocal about its move to cut its export quotas, but Beijing is determined to control the rare earth market.

"Foreign companies could be facing some material supply risks, unless they decide to move production to China," warned Yuanta's Min Li.

No Guarantees

But while China may ensure its first-tier green companies are given access to the rare elements, analysts agree this alone is unlikely to guarantee success for the Chinese clean tech firms.

New technologies free of rare earth elements could emerge that may undermine China's advantage, while further cuts in rare earth quotas could trigger a political backlash which could force the nation to keep supply open for its trading partners.

"Chinese technology needs to develop quickly enough to make full use of that advantage," said CIMB's Li.

"That window closes if its existing technologies fail to evolve."

There are currently many new mine projects outside of China in the pipeline but few will be able to compete with it on price unless governments offer production subsidies.

China's leading rare earth company, Inner Mongolia Baotou Steel Rare Earth Hi-Tech, is building 200,000 tonnes in rare earth oxide reserves, and state media reported that the ompany is joining forces with Jiangxi Copper to set unified prices for rare earth metals.

If supply becomes extremely tight as experts suggest, Chinese green companies may take upon themselves to secure the mineral by getting involved in the actual process of making rare earth products, analysts said.

BYD is scouting for new sources of lithium, an important ingredient for its high-performance batteries.

Like that of rare earth metals, lithium supply is expected to be tight by 2050, according to a European Commission study on critical raw materials. That is assuming most consumers would ditch their oil-guzzling cars for new generation vehicles.

A sister company of rival Toyota has secured a lithium supply deal in Argentina while Toshiba also plans to set up a rare metals joint venture with Kazakhstan state-owned firm azatomprom.