Legitimate Concerns on Rare Earth Minerals and Beyond

Paul Denlinger is spot on in calling the ability of Molycorp Minerals to get up and running in order to end America's utter dependence on China for rare earth minerals as a (one might say THE) test case for whether the US is serious about preventing a continuation of China's current near monopoly on these resources (link here).  One might go further and state that this is a test case for the American government's resolve in turning around the severe structural weakness of the American economy more generally (i.e. too much consumption, not enough investment and thus not enough production) amidst an international economy where other major players predicate their economic strategies on American excessive consumption (hello China, Germany and Japan) as former World Bank economist and FT columnist, Martin Wolf, has repeatedly emphasized over the past year or so. Beyond the question of US determination to fix these problems is the specific issue of how quickly the dependence on China for rare earth minerals can be terminated.  Denlinger's states that opening a few mines would end dependence, and this may be true, but opening a few of these mines might take a long time.  The Government Accounting Office suggests it might take up to 15 years to end rare earth mineral dependence on China (link here).

ECFA Mirage

Dan Rosen (link here) and others have praised ECFA as a way to boost Taiwan's economy while others-- and not just members of Taiwan's opposition party, the DPP--have condemned it as a threat to Taiwan's sovereignty. I have always suspected, even after the early harvest lists (which were much more generous to Taiwan than the PRC) were announced, that Taiwan would never be willing to open up significantly enough to fulfill the dreams of good neoliberal economists or realize the fears of Taiwanese nationalists. Yesterday's Economic Daily News has an interesting editorial that adds some support to my suspicions. The piece spells out very clearly the KMT government's own reluctance to open up in any significant way despite the PRC's expectations to the contrary.

Google: In or Out?

After issuing threats to leave China in January, Google became vulnerable to poaching of its key staff from other IT firms, particularly the foreign ones with large Beijing R&D centers e.g. Microsoft. As the disagreement with the Chinese government drags into its third month, one might think uncertainty would make things look bleak, but according to a report on Netease internally things have returned to normal according to at least one Google employee and Google appears to be recruiting staff although these vacancies appear to have been existing ones prior to the January quarrel. Advertising is also returning to google.cn so the tea leaves seem to be pointing to Google resolving its outstanding issues with the Chinese government. Happy Lantern Festival， 元宵节快乐！

SMIC: Good news, bad news

It is good news for SMIC's fabs that Simon Yang is back at SMIC as COO, which SMIC announced on February 9. Unfortunately, the board now is completely controlled by directors linked to the government, which was not the case as recently as a year ago. This situation cannot be good for the firm's governance and replicates the situation David N. K. Wang had with the heavy hand of the government when he was CEO of what the government originally promised would be a new improved "market-oriented" Hua Hong. The brand new Year of Tiger (though technically still Feb. 13 i.e. 除夕 here in London) will certainly be a fearsome challenge for SMIC's management.

Today on Beyond Beijing

I appeared on the radio program, Today on Beyond Beijing, with Professor Denis F. Simon to discuss innovation in China on Wednesday morning Beijing time.

The audio file link is here.

AMEC's settlement with Applied Materials

AMEC has reached an out-of-court settlement with Applied over patent infringement (link). While the amount of money AMEC has agreed to paid Applied has not been disclosed, I am tempted to think that this is a victory for AMEC i.e. they remain in business. China clearly is trying to promote its semiconductor capital equipment sector along with its semiconductor fabrication and AMEC is one of the most promising firms in China's semiconductor capital equipment sector. While Taiwan's attempts to leverage its large investment in semiconductor fabrication to enter the capital equipment sector (including lots of pressure on Applied according to insiders I've talked to) failed, China given its scale may be more successful. Of course, China's tendency to botch its industrial policy may work against realizing these dreams, but one day we might look back at this settlement as the beginning of the rise of China's semiconductor capital equipment industry.

Taiwan's other FTAs nixed

It appeared yesterday that Wang Yi from the PRC's Taiwan Affairs Office had signalled a major breakthrough in stating that China would not stand in the way of Taiwan signing FTAs with other regional economies. Unfortunately, today the Taiwan Affairs Office clarified that Wang had been misquoted (link). China clearly still wants an ECFA between Taiwan and itself before it will sanction Taiwan pursuing trade agreements with other regional economies. Of course, this ECFA looks less and less likely to happen given the push back from Taiwan's electorate.