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China Blocks Rare Earth Shipments to Japan

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In our escalating currency (really trade) dispute with China, many people argue that China holds the whip hand because it would quit buying US bonds. As we’ve explained repeatedly, that’s the last thing China would do, since stopping buying US debt (or more accurately, US dollars which it then moves into higher yielding assets than cash, typically Treasuries) would lead the renminbi to rise, which is the thing China is fighting to have not happen.

But we’ve foolishly and unnecessarily made ourselves vulnerable on other fronts. Certain rare earths are necessary for many advanced technology components. Even though China is not the only place were deposits exist, we’ve allowed it to become the dominant provider, and it would take years to get other sources to the point where they could replace Chinese production. (However, the article notes that China is willing to ship rare earths if they are in intermediary or end products, in other words, forcing Japan to cede operations to Chinese companies).

Even though it is Japan, rather than the, which is on the wrong side of Chinese action, given the close relationship between Japan and the US (Japan is, after all, a military protectorate of the US), and heavy use of Japanese products made from these materials in the US, one has to assume this is also intended as a shot across our bow. It seems an over the top response to the matter at hand, the detention of a Chinese fisherman caught in disputed waters.

In other words, this could get ugly fast.

From the New York Times:

Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loading aboard ships at Chinese ports, industry officials said on Thursday….

A Chinese Commerce Ministry spokesman declined on Thursday morning to discuss the country’s trade policy on rare earths….News agencies later reported that Chen Rongkai, another ministry spokesman, had denied that any embargo had been imposed.

Any publication of government regulations or other official pronouncements barring exports would allow Japan to file an immediate complaint with the World Trade Organization, alleging a violation of free trade rules. But an administrative halt to exports, by preventing the loading of rare earths on ships bound for Japan, is much harder to challenge at the W.T.O.

The United States, the European Union and Mexico brought W.T.O. complaints against China last November after it issued regulations limiting the export of yellow phosphorus and eight other industrial materials….

China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

Dudley Kingsnorth, the executive director of the Industrial Minerals Company of Australia, a rare earth consulting company, said that several executives in the rare earths industry had already expressed worries to him about the export ban. The executives have been told that the initial ban lasts through the end of the month, and that the Chinese government will reassess then whether to extend the ban if the fishing captain still has not been released, Mr. Kingsnorth said….

Industry officials said that mainland China’s customs agency had notified companies that they were not allowed to ship to Japan any rare earth oxides, rare earth salts or pure rare earth metals, although these shipments are still allowed to go to Hong Kong, Singapore and other destinations. But no ban has been imposed on the export to Japan of semi-processed alloys that combine rare earths with other materials, the officials said. China has been trying to expand its alloy industry so as to create higher-paying jobs in mining areas, instead of exporting raw materials for initial processing.

Japan has been the main buyer of Chinese rare earths for many years, using them for a wide range of industrial purposes, like making glass for solar panels. They are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius.

American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.

The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.

The House Armed Services Committee has scheduled a hearing on Oct. 5 to review the American military dependence on Chinese rare earth elements….

Despite the name, rare earths are actually fairly common; they are expensive and seldom mined elsewhere because the processing equipment to separate them from the ore is expensive and because rare earths almost always occur naturally in deposits mixed with radioactive thorium and uranium. Processing runs the risk of radiation leaks, — a small leak was one reason the last American mine was unable to renew its operating license and closed in 2002 — and disposing of the radioactive thorium is difficult and costly.

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62 comments

    1. kevin de bruxelles

      The NYT article explained the probable reasons for this denial:

      A Chinese Commerce Ministry spokesman declined on Thursday morning to discuss the country’s trade policy on rare earths, saying only that Mr. Wen’s comments remained the Chinese government’s position. News agencies later reported that Chen Rongkai, another ministry spokesman, had denied that any embargo had been imposed.

      Any publication of government regulations or other official pronouncements barring exports would allow Japan to file an immediate complaint with the World Trade Organization, alleging a violation of free trade rules. But an administrative halt to exports, by preventing the loading of rare earths on ships bound for Japan, is much harder to challenge at the W.T.O.

    2. Yves Smith Post author

      Did you read the Times story? It appears not. China can’t admit to a ban, it’s a clear violation of WTO rules. So if they are asked, of course they will deny even if the ban is on.

      And the Times story INCLUDES the same denial that the WaPo headlined. It’s even in the excerpt here. So the WaPo is doing stenography, the Times doesn’t buy the official line.

    1. Glen

      Yes, thoruim is being considered in new reactor designs.

      Maybe we can re-consider this too:

      “American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.”

      Those magnets are made using the rare earth elements, and are the key components to electric motors and lasers, and the building blocks to lots of our new green technology. Maybe it’s be smart to do it here so we can avoid another stupid dependency on “foreign oil” situation.

      I was just discussing our “default” national industrial policy last night with some friends:

      We sell our technology to the highest bidder, and outsource our jobs to the lowest bidder.

      Or how to wreck the world’s largest economy to make a quick buck.

      Maybe we need to put a bit more thought into that too since it’s been working quite well at wrecking our economy.

      1. F. Beard

        We sell our technology to the highest bidder, and outsource our jobs to the lowest bidder.

        Or how to wreck the world’s largest economy to make a quick buck. Glen

        Obviously those policies profit some Americans. The question I have is why doesn’t free trade, for instance, profit all Americans?

        My short answer is: The government backed banking cartel which allows corporations to loot wealth rather than share it via new stock issuance.

      2. Chris

        “Uncompetitive” — I love that word. It’s so loaded. That’s corporate speak for, “American workers cost too darn much, and we’d rather pocket the savings instead.”

        1. attempter

          I especially like the lack of agency in “became uncompetitive”, as if it were some accident or natural process rather than a systematic top-down political choice.

    2. Fifi

      Absolutely. Thorium is not something you ‘dispose’ but rather store preciously for the long run. It’s a 50 years+ investment.

  1. charcad

    Once again the USA did this to itself.

    http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2010-raree.pdf

    In 2009, rare earths were not mined in the United States…

    Bastnäsite deposits in China and the United States constitute the largest percentage of the world’s rare-earth economic resources, while monazite deposits in Australia, Brazil, China, India, Malaysia, South Africa, Sri Lanka, Thailand, and the United States constitute the second largest segment.

    A successor state, population and civilization will undoubtedly make better use of all these abundant resources than the current down-bred, down-educated and dissolute mongrel mob covering North America.

    1. rj

      “A successor state, population and civilization will undoubtedly make better use of all these abundant resources than the current down-bred, down-educated and dissolute mongrel mob covering North America.”

      Yves, if any person ever starts a revolution and attempts to kill everyone, charcad probably did it. Grab a hold of his IP address and keep it for future reference. :D

      1. charcad

        any person ever starts a revolution and attempts to kill everyone

        That would be redundant. :-)

        The Baby Boomer lemmings are doing a great job on their own of rushing over the cliffs. All anyone needs to do is side-step out of their way.

    2. Leviathan

      Of course, we love to pile on the CEOs and Banksters who sold off the nation’s crown jewels to fill their pools with Evian. But the mainstreaming of essentially luddite anti-mining, anti-manufacturing, anti-business eco-worship has also been a major factor in the death of a sustainable, productive American economy.

      Want to really square the circle? How many masters of the outsourcing universe justified what they were doing based on a rationale of saving America’s natural beauty? Bought vast sections of Montana wilderness with their bounty? More than a handful.

      I’m not advocating strip mining national forests, but the balance between using our resources to maintain living standards and seeking to put all human activity beyond the pale has clearly swung too far in one direction over the past 20 years. Obama’s ham-fisted refusal to lift the drilling moratorium in the Gulf of Mexico is Exhibit A at the moment. How much more damage could be done to the ecosystem there vs. how fragile are the human communities in the region? What is gained by the moratorium? At what cost?

      1. John L

        I suppose that if a certain element was found in a national park, then, you’d have no problems with it being mined there. Very few mines are denied due to ecological or environmental reasons; perhaps you would also like more regions such as SE Tennessee, around the Copper Hill basin, in the name of “maintaining living standards”?

        1. Leviathan

          Thanks for proving my point re. the hysteria of the modern luddite movement.

          Mr. Dontfeedthetroll is being ignored, as his apt moniker suggests.

          1. dontfeedthetroll

            “Thanks for proving my point re. the hysteria of the modern luddite movement.”

            Yes , John L points to one of many concrete cases of environmental damage due to mining, but he’s be “hysterical”. and what of his point, do you support mining in national parks ? should we start blasting away in the grand canyon for uranium ?

            I point out that mining _can_ be done safely, but I’m still a hysterical luddite.

            I knew I shouldn’t have wasted the time…

      2. dontfeedthetroll

        ok, I’ll bite:

        “But the mainstreaming of essentially luddite anti-mining, anti-manufacturing, anti-business eco-worship has also been a major factor in the death of a sustainable, productive American economy.”

        Yes, do we need to start listing all of the superfund sites which were mines ? Starting with Butte, Montana. Mining companies are notorious for privatizing the gains and socializing the losses, often declaring bankruptcy before plundering to avoid liability. We’re only anti-mining because they’re so incredibly irresponsible.

        Mining companies regularly hold 100-200 jobs hostage against the threat of tailing ponds, ponds filled with CYANIDE, and other environmental horrors. They could do it responsibly but they wouldn’t make AS MUCH money. They’d make a nickel just fine.

        And after your done actually researching all the damage that’s been done, we can talk about the free ride they get due to the 1972 mining act, and how the forest service routinely approves mining with the proper EIS.

        “Want to really square the circle? How many masters of the outsourcing universe justified what they were doing based on a rationale of saving America’s natural beauty? Bought vast sections of Montana wilderness with their bounty? More than a handful.”

        Not many. The justified it by being able to pay lower wages and no bennies.

        “I’m not advocating strip mining national forests, but the balance between using our resources to maintain living standards and seeking to put all human activity beyond the pale has clearly swung too far in one direction over the past 20 years. Obama’s ham-fisted refusal to lift the drilling moratorium in the Gulf of Mexico is Exhibit A at the moment. How much more damage could be done to the ecosystem there vs. how fragile are the human communities in the region? What is gained by the moratorium? At what cost?”

        Wow, I’m impressed with your concern trolling.
        The drilling stopped approximately 50 DEEP WATER WELLS. Shallow water exploration was not stopped. The communities in the region are fragile precisely because of that outsourcing you incorrectly labelled as being due to the environment. What is gained by the moratorium ? How about some time to figure out how to prevent another disaster. You did hear about BP’s blow-out didn’t you ?

        At what cost ? Heard of peak oil. Do you know why BP et al are drilling in deep water ? Because that’s where the oil is. The oil is getting harder to find. Drilling in deeper water is more difficult and raises the potential for environmental damage.

        Concern troll.

        1. dontfeedthetroll

          doh !

          1872 mining act

          and the forest service recently got slapped down on a proposed mine because they did NOT properly prepare an EIS.

      3. charcad

        the mainstreaming of essentially luddite anti-mining, anti-manufacturing, anti-business eco-worship has also been a major factor in the death of a sustainable, productive American economy.

        Most of this agit-prop is spread by paid employees of 501C3 “non-profits”. Every time I see a local eco-wingnut “Event” covered in the local media, the quotable organizers invariably turn out to be 501c3 paid professional agitators. (Their non-voluntary off duty time is spent as Democratic Party foot troops). And who funds these entities and sits on their boards of directors?

        Christina Romer’s resignation was amusing. Of course she has to play clueless about why no real recovery is in sight. Her only other explanation was to point at the enviro-whacko manques like John Holdren, Carol Browner and Lisa Jackson. They’re all sitting on that flat air mattress that Romer, Geithner and Bernanke are huffing and puffing so hard to reinflate.

        Naturally she played stupid. And for her team spirit award she applied for the position of President of the Federal Reserve Bank of San Francisco.

        1. alex

          Regardless of what you call agitprop, and contra to Leviathan’s point about environmentalism destroying our industrial capacity, Germany has very strict environmental laws and yet is a major industrial exporter, and does quite a bit of mining too. This is one case where you can have your cake and eat it too. Where we have screwed up is in not including environmental and labor requirements in our trade agreements.

    3. tc

      Rareearth metals are strategic metals and has been exported quite cheaply from China. Why dig from your own ground and pollute the country and deplete strategic resources at the same time? Japan is reported to have imported so much rare earth and deposited in their seabed to last 40 years supply. But China has now realised this an exercise limit on controls. But remember China only has 30 over % of world deposits. Why no others are producing and exporting?

  2. Positroll

    I was a little too cryptic there:

    “With the dramatic changes in the rare earths industry, we’ve also started to consider the possibility of
    processing 1 million tonnes per annum of ore. That would equate to 6,500 tonnes per annum of rare earths,
    of which approximately 1,500 tonnes would be yttrium and heavy rare earths, which would probably make
    us the biggest producer of those products outside China in the near future. The question then would be how
    we could sell the additional zirconium products and the way to do that could be to have flexibility in the
    pricing structure, without impacting on the overall revenue stream.”
    http://www.alkane.com.au/reports/asx/pdf/20100916.pdf

  3. purple

    This is stupid on the part of China. It shows that their domestic political situation is getting unstable, particularly the use of nationalism to bolster the CCP. Wen more or less said this as well, when he announced that a yuan appreciation would bankrupt their export industry and ‘only the premier understands these pressures.’

      1. fajensen

        Yes, no doubt “the elite” will write a very angry letter that the Chinese will then “… give the complaint every consideration that it deserves”.

        China is a sovereign state; the looters and the pillagers obviously have a hard time with that concept since their own “home” states are so subservient to their needs.

        Go China! Dump the USD too!!

  4. jumping jim

    China seems to have been showing it’s colors for some time. Unfortunately the US political system is so fucked up we can’t even respond effectively.

    The US is going to end up being controlled by China, or it’s going to be world war three. Coorporate America better start telling congress to think long term so we can get this ship turned around.

    1. Skippy

      China still bears the scars of the Wests tender mercy’s, they do not think in sound bites, not bamboozled as before.

      Skippy…maybe an apology for past transgressions would be forthcoming to better times…eh.

      1. Leviathan

        I’m not really sure what you mean. China fared badly in its interactions with the West, it’s true. But that was scarcely a one-way street. The Qing Dynasty played the international diplomacy game very badly and lost control as a result. It didn’t need to end that way (http://en.wikipedia.org/wiki/Macartney_Embassy). Japan learned a lot quicker than China and thrived in the new era.

        Chinese history does however warn us that the country does not view itself as a “normal” nation and will not necessarily play nice in the global sandbox. Again, idiot American businessmen saw only what they wanted to see. They, unlike Lord McCartney, were willing to kowtow to the emperor for a share of the pie. And now we all get to pay the price.

        1. Skippy

          Pride goes before a fall…eh, yeah history is chuck full of it.

          Just…maybe we all need to climb out of our individual trees and roam the savannas again.

          Skippy…spheres of influence have never been so compacted, can nations act like passengers on a Tokyo subway[?], get to the othe side of town.

          PS. the great general MaCarthur had his moment with Tojo too.

  5. LAS

    This is a problem for mining companies because if they do reopen mines in California and Nevada, what will probably happen shortly after the investment decision is that China will start selling again and at lower cost to drive them out of business again. It’s the brute jerk ‘em around approach and how a communist country does capitalism. Whatever the US decides to do has to involve some careful thinking or it’s not going to work.

  6. Mike Snow

    In all this talk about China’s economic strength, there is never a mention of the real lever the U.S. holds, implementing tariffs and regulations that significantly reduce China’s exports into the U.S.

    While the impact would be felt in our economy (price increases), that impact is certainly manageable, the move would be politically a home run, and could be reversed as quickly as it is activated.

    The impact on China would be devastating however. Their entire growth strategy is export based. The ramifications of losing their biggest market, would most likely be a minimum of riots and unrest, with the potential of full scale civil war. Even the threat of such an action, if perceived as real, would certainly get some real results.

    So the question I would like to see asked & answered, is why are we not pursuing such a course? The imbalances in China will have to be reckoned with some day & the potential impact to our economy gets larger the longer we wait. So why aren’t we turning the screw now?

    1. fajensen

      So the question I would like to see asked & answered, is why are we not pursuing such a course?

      Because the resulting 30% rise in the cost of living would blow the remaining US economy clean out of the water. *Everything* in “The Globalised Economy” is optimised to running on the thinnest of margins and then leveraged 40-100 times with Free Credit.

      The US (and “The West”) now desperately needs China’s cooperation to crush wages and product pricing so “inflation” can be low and interest rates kept at Zero.

      How would the US feed it’s population when Wall Mart et. al. goes bust – which they absolutely will when product prices rise 30%: The business had a margin of maybe 5% and they now have to obtain more credit to restock, interest rates going up (because now the gubmint has to borrow eevn more for SS) and sales going off the cliff?

      China, in comparison, has not that far to fall – most will just move back to their parents farm and the PLA will crush the dissenters who insist with tanks. Anyway, China can (and probably does) just make up any growth-y figures they like, blame the US for anything bad, and as long as the people see things improving – which is easy when hundreds of millions live in rat-infested shacks and work *really shitty* jobs – they will come out fine even without the US.

  7. tc

    Yves, I think you and the meda missed the point that the detention of the Chinese fishing boat captain was done in the water off disputed island of Diaoyutai. At stake is national territory, seabed economic zones and resources therein. The detention was done to strengthen Japanese claim over the island.

    1. Yves Smith Post author

      I don’t have the geopolitical background to discuss it at length, but I thought the Times account made clear the issue was a territorial dispute. One of my buddies has been saying since the early 1990s that this area would be the cause of WWIII (Russia also has claims that overlap with some of the Chinese-Japanese claims).

      1. Glen

        Quite frankly, the worst US military fears were if China and Japan ever started to work together. Lucky for us they seem to hate each others guts at a very visceral level.

        But Taiwan is the canary in this coal mine. If you ever see a populous shift in Taiwan to return to China’s rule, you will know that US foreign policy in the Far East just got flushed.

        1. charcad

          I can’t imagine a greater disaster for US strategy and diplomacy than a Japanese-Chinese entente.

          The question about Taiwan is a struggle between ruling elites. Beijing wants to reduce Taipei to obedience, not rubble. Demographically the Chinese already occupy Taiwan.

          There is no incentive for a shooting war over Taiwan. In a real sense such a conflict would be a resumption of the Chinese Civil War of 193x-1948. No one can guarantee such a war could not spread to the mainland.

          1. Glen

            There will never be a shooting war, but the day Taiwan decides it’s smarter to be allied with China, then America’s role as the sugar daddy superpower just took a major hit.

            Japan is not in a happy place right now, and if Taiwan goes, they will also most probably be dealing with the fact that China is the de facto superpower from Siberia to India. You will know they are dead serious about their situation when Japan makes nukes. Something they can do rather quickly.

          2. Tac

            There it explains the Cheonan sinking, endless war games in China’s front yards and back yards, high profiled presense georgie Washington ac + flotilla of other warships and submarines with nuke warheads to destroy the planet many times over. Clinton just declared US also has strategic interest in south china seas (probably over resources in the sea beds) and offer nuke technology, including enrichment (banned for Iran) to Vietnam. The US is a greatest saboteur(some say terrorists) of world peace and stability(elephant in the room).

      2. charcad

        It could conceivably start from a clash here. But the fundamental issue at stake in World War III will be the political disposition of all of Siberia and Central Asia east of the Ural Mountains.

        1. Glen

          The short answer to what happens to Siberia’s resources is answered with a Russian nuke if they’re invaded by China. The Russians regard their mineral wealth as a key resource. They have also quietly become the country with the world largest known oil reserves.

          China is very patient and pretty smart about this stuff so expect to see joint China/Russia development initiatives.

          1. charcad

            The short answer to what happens to Siberia’s resources is answered with a Russian nuke if they’re invaded by China.

            Not with this decrepit a defense industry:
            http://en.rian.ru/analysis/20080321/101944316.html

            There is reason to think this same advanced decay extends into Russia’s strategic nuclear forces. Back in the Cold War the average service life of a Soviet ICBM was 10 years.

            It’s entirely possible that following the Soviet collapse this effective service life magically doubled and tripled for Soviet missiles built in the 1980s. The other explanation is the Russian land based missile arsenal has declined to about 150 operational missiles, and shrinking. This includes the new build Topol-Ms. iow the same size or smaller than China’s ICBM force today.

            This would explain why Putin was so agreeable in the recent arms reduction talks. He was only giving up weapons that he knew didn’t work anyway.

            The USSR collapsed when the Russian component declined to 50% of the total population. The Russian Federation however still came away with a great many non-Russians. You can see that here:

            http://russiatoday.strana.ru/en/profile/people/nat/

            Only 80% (and falling) of the population are Russians. The same cycle of Russian below replacement level reproduction is repeating.

            The Russians regard their mineral wealth as a key resource. They have also quietly become the country with the world largest known oil reserves.

            As was the USSR before them. So what? It didn’t stop the implosion of the USSR.

      3. Tac

        I think Diayutai island is between China and Okinawa which Chins lost to colonial power in 18th century but was given to WWII loser japan by the US. Russia had no claim over diayutai.

      4. Richard Kline

        So Yves (and to comments from Glen et. al.), this is actually _not_ a minor issue at all, the squabble over detentions at Diaoyu group. Nor is it a Japanese-Chinese tiff: it is US-Chinese proxy shadow-boxing.

        China’s policy over the extensive continental shelves in the East and South China Seas has been very clear for a generation: “We own it.” Many of those claims are disputable, yes, although in many cases, and with the Diaoyu more than most, the best claim lies with China likely. That doesn’t matter really. Issues of resource secruity and national sovreignty (after a century of extractive colonialism) are paramount. I would say that these issues of securing their claim to the adjacent seas is _as important to China as Taiwan_. I don’t think I’m exaggerating there. All policy makers in Japan and the US know this. These claims have been revisited multiple times over thirty years in spats in one place and another, always bringing sharp action from the Chinese, with the individual issues swiftly moved to the back-burner by all parties. No one really wants any wars here. No regional party has a remote chance of disputing any of these claims bilaterally with the Chinese. The US doesn’t really have much of a feasible means to exploit any of these areas themselves. But by stirring up locals, the US has chosen to use the _disputability_ of Chinese claims as a pressure point to use on the Chinese at American pleasure.

        This particular tiff started in March 2009 when, in effect, Japan invited the US to recognize Japanese claims to this particular groups, and the US said, more or less, I’m glad you asked that, because we thought they were yours. There is no way that Japan would have broached this issue without prior coordination. There is no way the Japanese would have ‘arrested’ Chinese nationals here without prior coordination with the US. They are our military protectorate after all, and specifically asked if that protection extended to issues in this group in March 2009. (Not that a ‘fishing boat’ from China would be doing anything in this area without Chinese governmental and security snooping directly involved, either.) Hilary Clinton’s remarks earlier this year that ‘the US has vital strategic interests involved in territorial claims in the South China Sea’ were HIGHLY provocative, and part of what is clearly an organized policy of the Obama Administration to use these pin pricks to pressure China. The US has very little leverage to get Chinese economic policy to change given US economic weakness, so it is readily apparent that this is the kind of fools-move elbow-to-the-ribs methods which are being resorted to. And the Chinese clearly understand given the direct and major kind of reply they’ve shown in cutting off rare earth exports. “You hit us; we raise you _three_ and hit your lackey-state and you.” What we are seeing is exactly the way a ‘pressure China on their currency’ line plays out: this.

        If there is ever a ‘World War’ over the continental shelves off East Asia, it will be started BY THE UNITED STATES. China doesn’t need one to gain there objectives. Nobody else can don anything to resist that. Are we stupid enough to start that? Likely not. Are we clumsy enough to start that? Case closed.

        Regarding ‘a major shift by Taiwan’s population,’ Glen, it’s all over there already. The indigenous Taiwanese, ethnically Polynesian, will never be reconciled to mainland control, but they are a small minority. A plurality on Taiwan are already pro-Mainland. But neither really matters because the financial and industrial elite of Taiwan are all-in big time in investing in Mainland China. Where did the capital and expertise come from to ramp-up the industrialization of Maritime China come from? The Chinese Diaspora, with a hefty share of that from Taiway. Economic integration has already happened, it’s an established fact. Yes, many bars remain, and those on the losing end of this are going kicking and screaming, but it’s all over. This is one reason why the US is resorting to clumsy, petty, proxy squabbles over sea-rocks, Taiwan is slipping away while we watch. And regarding Chinese-Russian joint exploitation of Siberia, that’s much, much farther along than you are crediting. At the low end, a significant share of consumer non-durables sold in Siberia already come from China: they’re closer, cheaper, and Chinese merchants are everywhere. There are major, government faciliated operations of great geostrategic import underway too such as natural gas and eventually oilpipelines from Central Asia exporting to China. These involve what are in effect Russian proxy or protectorate governments, and these projects are clearly directly promoted by the Russian government; in effect, Russian-Chinese exploitation. And don’t discount that money talks in Russia with endemic industrial capital corruption and cronyism. One should anticipate that Chinese-controlled _capital_ is already heavily at work in Siberia even if nothing is put down on paper.

        The changes you suggest Glen are not future changes: they’ve been underway for 10-20 years and are beginning to mature. While our idjit powers that be in the US have been waging low-intensity genocide up back-of-beyond valleys in the ‘Stans where there is no money to be made and no friends of ours ever, China has already lapped the field on the issues of geostrategic importance for their reestablishment as a principal power. (Not that I have a problem with that, but that’s another comment.) The US is reduced to getting our flunkies to blow spitwads at the Chinese to try to influence Chinese policy. Don’t bet on us getting anything useful or successful out of dumbass moves like this.

        Will this particular dispute in the Diaoyu group ‘get big fast?’ No way. These are always swept under the rug, and Obamaclinton are jabbing the knitting needle without meaning to push this anywhere, just making a point. Which is rather what Russia thought it was doing with Austria-Hungary using Serbia as the irritant. That went well, didn’t it? The continental shelf of East Asia is NOT the place for pressure points in my view. And the US only hazards this because we think we are just too . . . exceptional ever to have any blow back reach our front porch. Until it does. And I guarantee most Americans just won’t have a clue why it happens when it does. But we are watching why, right now.

  8. Adam's Myth

    Let the smuggling begin! Finally, China’s endemic corruption will work for instead of against the West.

  9. Neil D

    There was probably no way to prevent bad actors in China or any other country from exploiting their market power for political purposes. Here is another reason to be concerned about the corruption.

    Big bad pharma is many things, but they are choir boys compared to the group putting out stuff like this:

    “THE drug that caused eye infections in 61 patients who received treatment at Shanghai No.1 People’s Hospital earlier this month was a fake, the Shanghai Food and Drug Administration said yesterday.

    The drug was not Avastin made by the global pharmaceutical giant Roche, though it was labeled as the Roche product and given a batch number of B6001B01, said the local FDA, following tests by the company and the city’s drug accreditation institute.”

    Read more: http://www.shanghaidaily.com/article/?id=450066&type=Metro#ixzz10Mz2SqWN

  10. Wade Nichols

    China Blocks Rare Earth Shipments to Japan

    The Japanese say: “I Know I’m Losing You!”

    The Chinese say: “I Just Want To Celebrate!”

  11. charcad

    http://www.nytimes.com/2010/09/23/business/23yuan.html?src=busln

    ““An iPod is sold at $299, and China in the manufacturing link will only get $6 for it,” he (Chinese PM Wen Jiabao) said. The implication was clear: The bulk of the profits in producing the item accrue to Apple and others in the supply chain.”

    Is this true that mainland China only gets $6? Oddly enough, it’s possible for Chinese leaders to lie and spin. Perhaps the $6 only represents direct labor payments. The rest of Foxconn’s overhead, raw materials and imported components are probably additional.

    Still, this $299 for an iPod would make an excellent case study. Who gets what pieces of this $299 retail? And let us not forget to add sales tax to the transaction. S suspect very people (and none in the existing Democrat or GOP establishments) will be happy with the real answers here.

    I’ve long thought Gates, Ballmer, Jobs, Dell and the rest are significantly overpaid just for ordering Chinese take-out. I’ve also thought that all these Chinese imports in general are not nearly cheap enough given what they represent. Too many non-productive domestic Special Interests are getting paid off along the way.

    The Chinese have had plenty of willing well-paid collaborators in North America along the way. Many of them were attending this meeting of “economic celebrities” as Chinese officials billed it. Or “economic traitors” depending on your viewpoint.

  12. emca

    I thank Charcad for his link, but I fail to see how it supports any of the assumptions and polemics being noised here about Luddite subversions of free-markets(?), or even how overall production gain or loss in this country is primarily not the result economic factors, i.e. the marketplace at work.

    From the paper:

    “The United States continued to be a major consumer, exporter, and importer of rare-earth products in 2009. The estimated value of refined rare earths imported by the United States in 2009 was $84 million, a decrease from $186 million imported in 2008″

    (Note, major … exporter .. the decease in imports)

    Also from the paper, the price on the World market for Bastnäsite concentrate dropped from a $8.82/Kg in 2008 to $5.73 in 2009. Tying this in with the Mountain Pass sub-plot:

    “The rare-earth separation plant at Mountain Pass, CA, resumed operations in 2007 and continued to operate throughout 2009. Bastnäsite concentrates and other rare-earth intermediates and refined products continued to be sold from mine stocks at Mountain Pass. Exploration for rare earths continued in 2009; however, global economic conditions were not as favorable as in early 2008″

    Note the term exploration. Notice also that while the Mountain Pass isn’t currently mining, they are processing, presumably using previously mined stocks at site.

    You can also see under “Salient Statistics” that employment at US mines and mills (for rare earths) from 2005 to 2009 has actually increased (well 71 to 110 in the nation scheme of things is meager, but hey, it is better than other industries; which begs the question: how important is rare earth internal production to larger economic framework of this country or is the inability to strip-mine national forests really a hindrance to economic prosperity?)

    It appears as though the major factors in domestic rare earth extraction and processing are in order:
    (1)economic (World demand)
    (2)abundance of said deposits of usable quantities (China 30%, US 13% of known reserves)

    Added my guess (outside this paper) is that China enjoys a major competitive advantage in cheap labor costs. That environment safeguards (the reduction of with is unacceptable to most Americans for again such paltry gains of idealogical speculation) are a significant component is not supported.

    My other guess this is just as stated: that China wants to nudge toward a more finished product based not solely on extraction of a raw resource. In other words, the develop a home-grown industry and reduce exposure to external national policies. That it can be seen as a stick to hit Japan (or tree-huggers) with, well so much the better.

    1. charcad

      even how overall production gain or loss in this country is primarily not the result economic factors, i.e. the marketplace at work.

      Is the absence of offshore oil & gas drilling on the Florida coastal shelf in the Gulf of Mexico the result of:

      1) The “marketplace at work”?

      2) The US Coast Guard enforcing the federal and state offshore drilling bans in this area? Or do real “Austrians” classify the threat of long term imprisonment as just another economic factor of the marketplace?

      The China Trade has definitely been a bi-partisan policy. Enviro-nuts have used it to temporarily evade the true costs of the policies imposed by 6 & 7 figure lawyers such as Browner and Jackson. Meanwhile the “Austrians” and similar monetarists can mouth platitudes about “free markets” and suchlike.

      It all worked great. At least until real U6 un/underemployment went to about 25% and a massive wave of r.e. foreclosures – arising from the lack of value-added wages to make the monthly payments – imploded the economy.

      While we’re on the subject of good public statistics, here’s a few worth pondering:

      http://www.eia.doe.gov/emeu/aer/txt/stb0301.xls

      Graphing columns D,H,K & O against column A might reveal something. As the lady said yesterday, where’s the “deflation” everyone talks about outside of real estate, wages and collectible antiques? It’s sure not in that data.

      In these circumstances Nancy Pelosi, Carol Browner and Lisa Jackson have deemed it opportune to launch a war on the cheapest fuel, coal. We can also note that federal policy is directing wind turbine output into displacing the cheapest domestic fuel, coal. The most expensive fuel, imported crude oil, is ignored.

      Meanwhile…

      http://www.dailyfinance.com/story/credit/federal-reserve-job-growth-economy-options/19606505/

      “Monetary stimulus has provided conditions so that manufacturing plants want to hire new workers,” Kocherlakota said. “But the Fed does not have a means to transform construction workers into manufacturing workers.”

      The magnitude of the unemployment created by those mismatches is enormous, according to Kocherlakota’s calculations. Judging by job openings listed, he estimates that if the skills issue was eliminated, the unemployment rate would be closer to 6.5% than its current 9.5%.

      Democrat Academician J. Bradford DeLong felt – correctly – that a finger was starting to point at the American educational establishment. He therefore made a huffy reply on his blog. Perish the thought that a bureaucracy receiving a mere trillion or so annually should be expected to produce tangible results for the broader society.

      1. charcad

        how important is rare earth internal production to larger economic framework of this country

        For starters, the USA would always be dependent on others for neodymium to make neodymium magnets. No biggie. They’re only needed to make wind turbine generators, stepper motors and other unessential items. Of course the magnets, turbines and stepper motors can be outsourced, too, as we’re currently doing.

        That way when the Feds subsidize wind power the Chinese manufacturers can directly benefit from the policy.

        The real question is whether people in North America will enjoy being peasants ruled by the Chinese on a colonial basis. The Tibetans have had some experience with this and don’t seem to care for it. Neither do the Uyghurs. The Vietnamese have fought vigorously and long against it.

        Probably they’re all confounded by these inscrutable Westerners and their ready acceptance of Chinese dominion.

        The Malaysians similarly had difficult relations with their large Chinese minority in Singapore. They finally solved the problem by expelling Singapore from Malaysia.

        1. emca

          To the Defense Department the issue of rare earths coming from should be very important. And maybe consumers should worry also, since rare earth metal in particular is parcel to many of the gadgets they (we) use – but they aren’t, any more than they’re concerned where the next tank of gas will come from.

          As to the question of Americans being Chinese (and Global Corporatist) peons, yes it certainly does appear that way.

      2. emca

        The term “the marketplace at work” was used in referencing the isolated case of rare earths, as an interpretation of the document from the USGS you linked (I’d emphasize ‘you’ if I could figure out how to get HTML/WordPress to work). No other meaning was intended.

        I fully understand markets can be and are manipulated, but you have not provided evidence in your own link to support your argument; moreover that the US is suffering the consequences of environment activism on the rare earth front.

        What’s happening with oil…does that support in some way, any way, your rare earth hypothesis??

  13. Henry Chien

    Hi Yves, I’ve been following your blog for awhile – love it. As someone relatively new to the industry its great to get in depth commentary on issues in the industry (in contrast to cookie cutter financial news these days)…

    anyway I also wanted to let you know I wrote an article on social media and the changing nature of the ‘financial expert’ I mentioned (and linked) your blog as an example (in a positive way of course) – its on Tabb Forum: http://tabbforum.com/opinions/social-media-and-the-financial-expert

    Thanks!

  14. Hugh

    The world economic system is not in good shape. Nationalism and protectionism are common reactions to worsenng conditions. The Chinese action is damaging to itself. In the short run, it pokes a stick in the eye of a historical rival and competitor. But to anyone who is listening it is blaring out the message with trumpets and flashing lights that China is an unreliable trade partner and supplier. As many countries, including Japan, have experienced in their own development, China is in a mass production, low quality phase. Add in worldwide slack demand, fears of dumping, and beggar thy neighbor. Now there is this further tarnishing of their brand. This was not well played or thought out.

  15. Jim

    I would like to see China stop rare earth exports to the USA too, as a punishment for our arrogance. And by all means let us have a trade war with China and see how that comes out. That might be another needed lesson for the arrogant USA. I would also like to see China furnish shoulder held anti-helicopter missiles to the Taliban too, but that is probably too much to hope for. Oh I forgot also to say China needs to shove the Japanese out of the waters around the disputed islands, and tempt the USA to stick its busy nose into the matter. We might get it bloodied that way.

    1. Tac

      Uninvited, the US war machines have all round China for several decades, forming a ‘C’ shape (japan, Taiwan, S Korea, philippines), the excuse being China is hegemonic, apparently more than the US.

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