Will China’s Adjustment Mean more REE Demand?

ChinaFlagThis week’s big REE stories will likely come out of the PDAC gathering in Toronto, but I will leave that coverage to those actually there.  Today my attention is on China and a big development that took place this morning UK time.  For the second time in the first three months of 2012 China’s signalling their  intention to promote growth in the domestic economy over that of the export economy. Is China really about to adjust its export led economy in favour of a more G-7 style consumption economy?  If so, what does that mean for commodities prices and more importantly China’s internal REE demand? If all the world consumed like Americans, it’s estimated that we would need 3 planet earths. But that is just to cover today’s 6 billion humans. We are headed for a planet of 9 billion by about 2050. 

In a largely command economy like China’s, any switch in favour of consumption will happen far faster than in a free market system, as in the west.  When the top signals a change of emphasis, in an economy like China’s there’s no debate, everyone gets on with the job of meeting the new policy targets.  Back in January China signalled it was going to accelerate the pace of domestic growth, today’s speech re-empathised that, and even allowed for the inflation rate to remain at 4%. 

China Cuts GDP Target to 7.5% as Exports Slow
By Bloomberg News – Mar 5, 2012 5:24 AM GMT
China pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to reduce reliance on exports and capital spending in favor of consumption.

Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to a state- of-the-nation speech that Premier Wen Jiabao delivered to about 3,000 lawmakers at the annual meeting of the National People’s Congress in Beijing today.

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Asian stocks fell as Wen, 69, said the nation needs to shift to a more sustainable and efficient economic model and achieve “higher-quality development over a longer period of time.” China must boost the incomes of ordinary people, count less on exports and investment and reduce the state’s role in favor of private enterprise, Zong Qinghou, the country’s second- richest man, said in a March 3 interview.

The gross domestic product target should be read as the lower bound of the government’s “comfort zone,” said Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs Group Inc. in Hong Kong. “It can also be viewed as a gesture from the central government that local governments should not focus solely” on the pace of expansion.

Wen reiterated that the government will maintain a “proactive” fiscal policy and a “prudent” monetary policy. The government in February lowered banks’ reserve requirements for the second time in three months to boost lending and sustain growth, following five interest-rate increases from October 2010 to July 2011 aimed at slowing inflation.

Improving the quality of life, is one of the main aims of the current 5 year plan. Remediating past industrial excess, and environmental damage, switching to greener energy and more efficient energy usage. Controlling and reversing the massive air pollution problems plaguing most of China’s giant cities. China’s REEs for use in China? Indifference if Japanese and South Korean  buyers stay away? An accelerated push into electric public transport?

  1. “Prudent” monetary policy….I read that as “Strategic” monetary policy.
    Will China now let the Yuan appreciate faster against the other Base Currencies if
    they are easing into the “Buy Side”????
    The Journey of a thousand miles starts with the first step…they are now way down the road.
    However,they have been shoveling money into every nook and cranny around the World.
    Is that sustainable?…No Country is Immune from Fiscal problems…Will they
    get to a point where they have problems managing their GDP?
    The Good Little Behavioral Finance Lads at Morgan Stanley came out to play
    with Molycorp today….every thing is rosy now???….Their price target 81usd.
    Let us see what happens in the next few days for REE stocks…Do they still possess
    the power of Manipulation…May the Force be with them…We need a little help from our friends :)

  2. “Will China now let the Yuan appreciate faster against the other Base Currencies if
    they are easing into the “Buy Side”????”
    That is a good question to ask. It would certainly help with their resource purchases if done in RMB, but maybe they can use US Treasuries for their purchases. I am confusing myself again…

  3. China has been slowly but surely getting out of the USD.
    However, They like the Political Clout of holding US Treasuries.
    They hold the purse strings…this too will pass when it is no
    longer needed as a building block for their Global Power Base.
    GWM gets positive news today:

  4. China also announced that they are increasing their defense budget by 11% and that seemingly will increase internal demand for rare earth elements.

  5. My ol boss once said to me that when a town gets to a population of 50,000 then it can be self sustaining
    ie bread maker gives bread to the carpenter for work and the carpenter give work for his vegetables etc. A crude example i know but china has reached the point where it can sustain itself and I think thats what theyre saying. China is prepared to serve itself first and the way the government is structured and given their history they can do it.
    Regarding Morgan – yes they are the great manipulators – just look at the share holders in the majors – Moly, Lynas etc.
    I see even Alkane going up and down 2-3% per week – now if only i can time this then i too can be a morgan or moron

  6. Watching a Bloomberg interview with Mr Zong, of Wahaha (laughing children), I got the impression that China will not allow their currency to float while they are dealing with other economic issues. They’ve got enough balls in the air and aren’t concerned with the ROW attempting to dictate to them about the value of their currencies or economic plans, as these are internal issues.
    Maybe I’m wrong.

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