Chinese Warships off Taiwan's Coast - Resource Investors Should React Now

China is threatening with serious actions – both through naval deployments and supply stoppages of critical production metals.

Once again, the Chinese navy has crossed the meridian between the mainland and the island of Taiwan. The aim of this maneuver is to demonstrate China’s claim to the island, which it considers a part of its territory. Incidents of this nature have been increasing since the visit of Nancy Pelosi to Taiwan and the trip of Taiwan’s President Tsai Ing-wen to the United States. What many overlook in this scenario is China’s dilemma due to its lack of a high-tech semiconductor industry.

The United States has pledged support to the Taiwanese president in the struggle for the island’s independence. This contributes to preventing China from easily incorporating the world’s leading semiconductor manufacturer. However, China also cannot import semiconductor technology from the United States due to the Chip Act passed some time ago. This strategy by the United States and its European partners puts China in a difficult position, as it lacks a significant domestic semiconductor production and is dependent on exports. Nevertheless, China can exert pressure too: it still supplies over 90 percent of the rare earth elements arriving in Europe.

We feel the impact of China’s serious actions especially in terms of the supply security of the European industry. In the past, China has imposed export bans and tariffs on technology metals and rare earth elements to enforce political goals. Currently, the government in Beijing is considering halting the export of rare earth technologies and raw materials needed for solar expansion. Once again, China is reminding the EU of its dependence on its strategic metals. The market for technology metals and rare earth elements will almost certainly react to supply shortages with unpredictable price fluctuations. The fact that China exported 8 percent fewer rare earth elements in March than in previous years could already be an initial sign of the expected scarcity in the future.

Investors in technology metals and rare earth elements should act now to secure their positions. Investing in these resources not only safeguards their assets through the security of a physical investment but also offers the potential for high returns, including tax-free purchasing and tax-free gains after one year of holding.