China: No More Mr. Nice.

UntitledBig political change happens this year which could have a big impact on China’s relationship with the world, and possibly impact China’s rare earth supply policies. Up first is January 14ths presidential election in Taiwan, where the incumbent rapprochement president is in danger of losing to a China hard liner. In October or possibly November, 7 out of 9 of China’s Communist Politburo are replaced, including the President and Prime Minister. Ahead of that change, China seems to be cracking down on dissidents, reigning in the media, and taking a more confrontational stance with the west. In November America votes for the next President with all the Republican candidates promising a harder line against China. 

Below, some of the recent news from China suggesting a hardening stance against the west.

2012 – China's year of change
2012 promises to be a landmark year for China, a year of change. But, here's the paradox, you are unlikely to see much change, not for most of this year, not in China.

In fact, the opposite is more likely to be the case. China's current leaders, who will step down later this year, are expected to batten down the hatches, clamp down on discussion and dissent and avoid any controversial decisions.

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For them this is the start of an unnerving period of flux, both in China and the outside world.

Not only is China preparing to replace its leaders, two of its most important relationships could change fundamentally too. The United States will have a presidential election this year, and Taiwan is about to stage an election that is too close to call.

The result could be new presidents in Washington and Taipei who have very different attitudes to China from the incumbents.

Some of the Republican candidates running for president in America have already talked about taking a far tougher line with China over trade and currency issues.

—- Later in the year, China's all-powerful Communist Party will begin the process of replacing the men who sit at its apex. It is a shift that happens in China once every decade, and will mark the move from one generation of communist leaders to the next.

—- Hu Jintao will step down in October or November from his most powerful post as general secretary of the Communist Party and hand over to a new, younger leader, expected to be the current Vice-President Xi Jinping, who is now 58.

Along with Mr Hu, seven of the nine members of the party's highest decision making body, the Politburo Standing Committee, are expected to retire, including current Premier Wen Jiabao. His most likely replacement is the Vice-Premier Li Keqiang.
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China’s President Pushes Back Against Western Culture
By EDWARD WONG Published: January 3, 2012
BEIJING — President Hu Jintao of China has said that the West is trying to dominate China by spreading its culture and ideology and that China must strengthen its cultural production to defend against the assault, according to an essay in a Communist Party policy magazine published this week.

Mr. Hu’s words signaled that a major policy initiative announced last October would continue well into 2012.

The essay, which was signed by Mr. Hu and based on a speech he gave in October, drew a sharp line between the cultures of the West and China and effectively said the two sides were engaged in an escalating culture war. It was published in Seeking Truth, a magazine founded by Mao Zedong as a platform for establishing Communist Party principles.
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China Cuts TV Shows That Contradict Party Line
By Bloomberg News – Jan 4, 2012 6:52 AM GMT
China’s government said broadcasters must cut the number of entertainment shows during prime time by more than two-thirds, culling a format that exposed a widening wealth gap (DFIGCN) that contradicts the Communist Party’s core dogma.

The total number of entertainment shows, including dating programs, game shows, talk shows and “emotional stories” airing from 7:30 p.m. to 10 p.m. was cut to 38 as of Jan. 1, from 126 at the end of last year, the official Xinhua News Agency reported late yesterday, citing the State Administration of Radio, Film and Television, or SARFT.

China announced the plan in October as part of a broader effort by the Communist Party’s Central Committee to assert more control of the media and Internet as it grapples with rising social unrest over work conditions and government corruption. Reality TV can undermine the party’s line that China is becoming more “harmonious,” said Willy Wo-Lap Lam, an adjunct professor of history at Chinese University of Hong Kong.
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Quite what this means for RMB readers, if anything, is pure guesswork, but with China the monopoly supplier of REEs and other critical metals, it suggests to me that it’s safer to use up the newly announced quotas early rather than waiting. Against that is the prospect of softer prices ahead as the global economy seems to be slowing, but the risk of an unintended political clash ahead would seem to trump that. China’s nervous Communist Party is likely to be on edge all year, and social unrest has been growing.  Molycorp’s off-take announcement yesterday only adds to the pressure. Better to be early or be first.

Molycorp ties more product into purchase agreements
TORONTO (miningweekly.com) – Rare earths miner Molycorp said on Tuesday it has signed offtake agreements for 58% of its phase-one production at the Mountain Pass mine.

The company has also allocated one-fifth of the 19 050 first-phase output to produce its trademark Xsorbx water treatment products, with an additional 6% of phase-one production in final-stage discussions with potential customers.

Terms, prices, duration, and products covered by these agreements vary from customer to customer, NYSE-listed Molycorp said.

Analysts at Dahlman Rose said in a note it appeared management had slightly beat its expectation of locking 75% of output into contracts by the end of 2011.

Anthony Young and Anthony Rizzuto said that placing the material into offtake agreements meant that less would find its way into the rare-earths spot market, mitigating the impacts the additional supply could have on spot prices in the relatively small market.
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  1. Altogether this sounds like the government is returning to a more “controlled” environment for both domestic and international policies. There was a blush of new freedoms over the past year, but the new “spring” upwellings accross the planet have apparently raised their awareness of just how rapidly such changes can occur if left unattended.
    A friend who teaches english has been traveling to China frequently, and he commented the other day that he encountered the “American Dream” alive and well in China. This seems to speak directly to the issue of the growing wealth gap and might well explain why so many of the western style “social” programming has been cut. Western ideas about wealth becoming equivalent to power are anathema, and downright dangerously infectious, to a top down power structure. The gap that has become a gulf in this country is evidence enough of the problems of unfettered capitalism. And China has 1.2 Billion people to deal with.
    Perhaps, as China begins to deal with the problems of environmental pollution (which is rampant), the various illicit/criminal enterprises, and the goal to “raise all boats”, they may well have to seriously throttle back their economy, and possibly their exports as well.
    Higher REE prices may return, or may well be required to finance the repairs to their sociopolitical and industrial systems.

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