Power instead of economic growth – Is China’s aggressive policy threatening our industry’s security of supply with raw materials?
First things first: we do not believe that China will invade Taiwan in the coming weeks. Nevertheless, the sharpened tone of the Chinese head of state alarms us. It serves as a reminder that, in addition to military threats, China has frequently resorted to supply halts of coveted commodities as a means of pressure in the past. For instance, there were already delayed and failed commodity deliveries from China to Japan back in 2010. Torsten Rössing from the renowned strategy and crisis management agency Ewald & Rössing GmbH & Co. KG considers such a course of action to be entirely possible in the present day as well. “While China has no long-term interest in Europe looking for other trading partners, it may test how the European market reacts to delays or to the sudden unavailability of one or two metals,” says Rössing, who lived in China for a long time himself. In his opinion, such steps could lead to price spikes and a general disruption of the price discovery mechanism. Whatever happens: we must prepare for a scenario in which China exploits our dependence on its commodities to assert its interests.
The PMI, China’s Purchasing Managers’ Index, indicates economic growth or contraction based on deviations from the 50-point mark. The fact that the figure for manufacturing fell from 50.1 to 49.2 from September to October can mean only one thing: China’s industry is contracting. In addition, the country has youth unemployment of over 20%. This, together with weak domestic demand, may be prompting Xi Jinping to make a high-profile show of foreign policy right now in order to distract from his domestic problems. We remain vigilant. Because Xi Jinping’s policy currently appears to be aimed at retaining and expanding power, rather than—as under previous presidents—achieving strong economic growth. “Xi Jinping’s current cabinet is aligned with his new approach of replacing stabilising economic policy with concepts such as nationalism and ideology,” says Torsten Rössing.
Around 232 million people in more than 30 Chinese cities are currently affected by COVID restrictions or measures. In the city of Zhengzhou, several employees of Foxconn climbed over the site fence with their belongings to escape a lockdown. Xi Jinping’s still non-negotiable COVID policy has tangible consequences—also for us in Europe. In the past, this policy has disrupted supply chains, leading to export stops. This can happen again at any time, meaning the market for technology metals and rare earths remains tight, because China is still the main producer of these critical commodities.
The door is still open!
The biggest concern in Germany at present is whether there will be enough gas for the winter. But while we have reached a new record with a fill level of 99%, inventories of technology metals and rare earths are still too low to make Europe immune to blackmail. We will not freeze—this is the good news. But an ice age could soon threaten industry—that is the bad news. Elon Musk takes a similar view, by the way: he describes the current international economic weakness as harmless, but predicts a dramatic recession scenario should the China/Taiwan conflict escalate. So let us fill the warehouses quickly together.
Technology metals and rare earths are currently the best-performing asset class:
