Posted 19 October 2010 - 11:14 PM
China's economy is now large enough that both of these moves (interest rate change and rare metal exports) can be viewed as being motivated solely in response to their own internal conditions, perhaps moderated to some extent by international considerations.
Other than their rare earth minerals, there is nothing that China exports that cannot be duplicated elsewhere. DARPA has long been funding research efforts to replace the rare-earth metals with other materials; it really is a matter of price differentials. Further, prior to China, with its lax environmental and labor safeguards, becoming dominate in rare earth minerals, the US was the primary producer - mines can be reopened and other potential sources are there just not yet exploited.
Given China's near complete dependence on imports of two of the three economic essentials (oil and food, but not water), it would be exceedingly stupid of them to attempt to use their current advantage in important, but not essential, rare earth minerals as an indicator of geopolitical strength. That would likely bring into view their complete dependency and staggering vulnerabilities.
Sure, China has been buying up both energy and food production around the globe - that is economic colonization which is far easier to oust than the earlier form of European colonization when the locals decide that it would be in their better interest to keep those resources for themselves - either because they actually need them or it has been 'suggested' it would be better to do so by the one player that can escalate that suggestion to something more persuasive - the US.
With the US controlling the world's reserve currency, China must compete with earned income against the US printing press - they will lose.
And if it should get a little hotter, well, China is in the league of several nations being able to defend its bordersBUT there is only one nation capable of projecting military power that, at a minimum, can control any international shipping lane.
But control is not necessary; mere disruption (as far lesser players have proven) can be devastating. A simple 'incident' at the Straits of Hormuz would have far more dire consequences for China than any other nation (although it will also likely end the regime in Iran as well) and far more of an impact that can be generated under the worst scenario of any cutoff of important-but-not-essential rare earth minerals.
The US as the world policeman or at least a force for attempted stabilization is one thing (with accompanying complaints and whining); however, the US as a de-stabilizing force, focused on you, is far beyond the worst nightmare of any foreign leader.
China may or may not be a punk, but it is certainly not stupid - not likely to repeat the mistake of another Asian county 50 years ago (next December 7) - not stupid enough to wake the sleeping giant.
For now, at best, a short-term market mover - soon forgotten.
John Galt shrugged, outsourced to Red China and opened a hedge fund for unregulated securitized credit derivatives.
If the world didn't suck, wouldn't we all just fly off?