Posted by: samhenry | September 26, 2009

Is China’s Economic Threat Now Lethal?

chinese-dragon-redFor roughly the last 10  years, warnings have surfaced intermittently about China’s growing hoard of rare minerals.  Now, chickens have come home to roost.  Recently China announced it was drafting a proposed ban on these rare  minerals. This sent shock waves throughout the globe.  The minerals are critical to the production of high performance electric motors for wind turbines, hybrid cars and missles.  Additionally, they stated that the minerals would be available for the production of the aforementioned products IF the products were purchased directly from China.

The immediate response was for several nations to draft regulations on the sale of mineral companies to China in which they have previously held more than a 50 percent share, to obtain loans for exploration of new sources or to reopen old mines and to take the matter before the World Trade Organization.  These actions have at least temporarily forced China to shelve its plans.

In the wake of this, China had pleaded that these minerals were needed for its own manufacturing. If this were true, why then would they be able to suddenly have them available to foreign countries that would have submitted to their outlandish requirements?

China is throwing its economic weight around much of which has been focused on the US.  Their concern for the Fed printing money and their continued investments in the US have seen them emerge as a concern. Their ability to influence Fed policy is unknown but his administration is encouraging their investments in our bonds.

While China has been building its portfolio of countries where its primary interest is minerals, it has been building its reserves of oil on the African continent.  This interest in commodities is new. in the 1960’s China was in Africa for diplomatic and strategic reasons to enhance their power. Unlike the west, China enters even the most unstable of countries never getting into matters of governance or human rights and sets up shop. But the end result is not always in Africa’s favor as it has not been in the US. China becomes a competitor and soon jobs are lost. This same phenomenon has repeated itself in Central and South America in recent years. China is strategically and financially more of a threat than previously. The impact of all of this on the US is not going to be as severe as on other economies should a showdown occur.  As

China’s deputy foreign minister, Zhou Wenzhong, told an interviewer, “Business is business.  We try to separate politics from business…. You [the West] have tried to impose a market economy and multiparty democracy on these countries which are not ready for it.  We are also against embargoes, which you have tried to use against us. cfr.org “China’s Rising Role in Africa.”

China offers countries in these regions money, technical expertise and protection from international bodies that might consider embargoes or other punitive measures for their internal treatment of citizens or for other crimes.

Perhaps the biggest return of Chinese investment has been to increase its foreign trade.  At a time when their trade with the US is shrinking, they are concentrating on third world nations for growth. Their strategies are complex and clever.  They are indeed a mighty economic, political and military power that bears watching.

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Responses

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