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China GDP Growth Spurt & the Rare Earths Connection

October has been a big month for China announcements. {complink 5703|Texas Instruments Inc.} announced the purchase of Cension Semiconductor, a 200mm fab previously operated by Semiconductor Manufacturing International Corp. in Chengdu. This week {complink 2657|Intel Corp.} announced the grand opening of its first 300mm fab in Dalian.

China is becoming a more powerful force in the world economic and technology arena. In August it was reported that China’s GDP reached $1.34 trillion, surpassing Japan and making China the world's second largest economy. With China’s economic growth rates in the 10 percent range and the US growing at only 2 to 3 percent, it’s been predicted that China will overtake the US in 5 to 10 years; China has already surpassed the US in the automotive market.

China also made the news last week regarding its control over rare earths, the 17 elements in the periodic table that are vital ingredients to a number of electronic gadgets and components. China is the largest producer of rare earths. (See The Truth About Rare Earths, Part 1.) The Economist noted that China is trying to control the rare earths market in a manner similar to OPEC's control of oil. China is cutting exports of rare earths 5 percent to 10 percent a year.

In July, China's rare earths export quota was cut by 40 percent and prices soared. The Economist further speculates that China is curbing exports to persuade foreign firms to move manufacturing to China. That’s probably not the only reason, but it may be one of the reasons behind Intel and TI’s recent moves into China.

The GDP and rare earth concerns overshadow another looming statistic. Very soon China is expected to overtake Japan in patent applications. Patents, a measure of innovation, have remained steady in the US, Europe, and South Korea but have dropped for several years in a row in Japan. In 2006, Japan and the US were neck-and-neck with approximately 400,000 patent applications each. Japan’s patent applications fell to approximately 350,000 in 2009 while China’s have increased from just over 200,000 to just over 300,000.

China’s power in the economic and technology arenas is booming. But as its economy grows so will its labor rates, inflation, and all the other challenges that go along with an uncontrollable appetite for more. China’s real estate markets are still on shaky ground. We’re all familiar with risks associated with uncontrolled growth in financial and real estate markets. And of course, the valuation of the yuan is a whole issue in itself.

The world depends heavily on China’s growth. History never repeats itself in exactly the same way, but we should all go back and review the Asian financial crisis of 1997 and remember that it’s in our best interest to make sure China’s growth remains stable.

6 comments on “China GDP Growth Spurt & the Rare Earths Connection

  1. AnalyzeThis
    October 28, 2010

    Thanks for the solid article, Joanne, you touch on a lot of interesting points. Of particular interest to me is…

    China’s real estate markets are still on shaky ground. We’re all familiar with risks associated with uncontrolled growth in financial and real estate markets.

    It is somewhat fascinating to me how different the Chinese real estate market is. For example, in certain provinces, the government has restrictions on the number of homes and real estate one is allowed to purchase. Obviously, this is a practice which could never happen in the states!

    I'm very interested to see how things shake out.

  2. Ariella
    October 28, 2010

    Very interesting, Joanne. Do you have any ideas in mind for what can be done to try to keep China's growth stable and not repeat the types of crises experienced in the past? 

  3. Barbara Jorgensen
    October 28, 2010

    Thanks for a well-researched, balanced article. China is in the news a lot, but you hit on the areas most crucial to the supply chain. I have a question: The world economy is tied to China's growth, but China seems to want to keep itself detatched –at least in the currency markets–from global economics. What are your thoughts?

  4. DataCrunch
    October 28, 2010

    I think it will be interesting how all this plays out.  One major aspect of all this to watch is China’s increasing influence in Africa.  In recent years, economic activity in Africa has surged by China becoming a large investor in many African nations.  This is no coincidence as these African nations are also rich in natural resources.   Yes, China will be a major player in REE exploration and mining, but will Africa become the new battleground due to its vast and untouched resources?  Keep your eyes on Africa’s future role in the REE supply chain as well.

  5. Hawk
    October 28, 2010

    Barbara, China is after stability, both economically and politically. That's why it must keep its currency relatively stable. Have you seen what the herd of currency speculators can do to a defenseless currency? You can bet they would like to start a run on the Yuan right now and are putting aside the resources to take on China's currency if it is ever allowed to float. This does not mean it is in China's long-term interest to keep its currency on a tight leash, however. The rest of the world won't stand for it and will eventually kick hard enough to get their points across and influence change in China.

  6. Adam Hochfelder
    March 15, 2016

    China's economy grew 6.9 per cent last year, according to official figures released on Tuesday, the slowest pace since 1990.

    Adam Hochfelder

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