As investors and economists worry about global spillover effects on commodities by a slowing Chinese economy, one key resource is bubbling under the radar—stockpiles of rare earth metals in neighboring North Korea.
The category of minerals called rare earth is a misnomer. The chemical elements are available throughout the world, and have tongue-twisting names such as cerium and lanthanum. But rare earth minerals are key to everyday tech gadgets and growing innovations, such as smartphones, high definition TVs, hybrid cars, missiles—even the extraction of natural gas known as fracking.
Rare earth metals have had a low profile compared to other metals and commodities like crude oil. But more recently, demand for mobile technology, smartphones—and minerals needed to manufacture those goods—has been rising. China, meanwhile, is a leading producer and consumer of electronic goods. And Chinese leaders want to secure a steady supply of rare earth elements—including stockpiles in North Korea, which largely has been isolated for 60 years, and is being used in addition to its own vast supplies.
That North Korea even houses any strategic resource may be surprising. But underneath the barren landscape lies metric tons of valuable elements, desired by China and other tech-consuming nations.
Amid strong global demand, North Korea's mining sector is a cash generator with plenty of supply. And the young North Korean leader Kim Jong Un is grappling with how to best manage that industry, which is integral to the regime's future. With North Korean property rights not clearly defined, "political factions" compete for assets and rents derived from the mines, said Marcus Noland, a leading researcher on the North Korean economy.
"One of the things they've been really trying to do is centralize and control this process," Noland said in an interview with CNBC.com last week.
(Read more: How rare earth elements are used)
Better than plain dirt
Some Asia watchers have characterized Kim's recent purge of senior leaders as unsettling to reforms. Jang Song Thaek, an uncle of the North Korean ruler, had accumulated an unusual level of business influence before he was executed in December.
(Read more: Being a North Korea 1 percenter just got dangerous)
Jang "had good contacts in China, no doubt about that," said Noland, executive vice president and director of studies at the Peterson Institute for International Economics in Washington. "But fundamentally, this relationship is being driven by the fact there are valuable minerals under the ground in North Korea, the North Koreans don't really know how to mine and process them, the Chinese have a great demand for those minerals.