The Race is On

The 10^th of November was when China was thought to have a plan to turn off the rare earths tap.

That’s them playing with their edge in the geopolitical arena.

China’s got an edge on a lot of things.

And they know how to play their cards.

The context for them playing the rare earths card at this juncture, is what the US is doing.

Right now, the US is squeezing/trying to squeeze their oil supply coming out of Iran.

Venezuela was the appetiser.

Two sides of the same coin

China bulls point to their whiz-bang tech.

China bears point to their financial system which is hadly going along swimmingly either.

Check out this latest plan by China to prime the liquidity pump in the country:

Source: Bloomberg

Meanwhile, is there much
more cash to flush out?

The Reserve Requirement Ratio (RRR) is a measure of how much cash the PBOC requires large banks to keep on hand in China.

Over the last 10 years it has more than halved:

Source: TradingEconomics

[Click to open in a new window]

When there’s less cash available in banks to flush out into the market, and the government has to issue more bonds to get a creaky system moving forward again…

Well, it’s not all sunshine and roses.

I think it’s evident that the US strategy against China, as old-school as it is, is having a strong effect on the Chinese economy.

It’s old school in an energy dominance sense.

China bulls think they have the ways around it with batteries and nuclear (or, not to mention a lot of coal).

China bears point to the fact most of the Chinese economy still runs on fossil fuels.

Not everyone thinks the same.

But China bulls and bears can meet in the middle around demographic realities, which find their way to these two things.

Pressure release valve, weakness, or both?

Rare earths and robots.

Rare earths were scheduled to face an export ban on the 10^th of November this year after an October date was pushed back a year.

That date might have just been pushed forward into this month. Have a look at this little headline from last week:

Source: Reuters

Rare earths are needed to build robotics that can help China address its rapidly looming demographic crisis.

Human lives in China cost too much, just like I argued yesterday, that our Western lives cost too much.

Rare earths have long been a pressure release valve for China as the country combats the US and its various forms of geopolitical judo.

And yes, they do have cooler robots than us at the moment, just check out the headlines:

Source: Bloomberg

Fast, faster, now fastest robot alive!

Either way, just know that both sides of the race are playing with different leads.

China has a head start, but the West, with our sturdier demographics, has more time to play with.

Who wins? Well, that’s a question for Father Time.

The race is well and truly on.

Better get some rare earths if you want those robots.