China is making a killing off its resources, but it says it's all to "protect the environment"

The economic leadership of China is either brilliant or diabolical, depending on your perspective.  The world's fastest growing economy is accelerating its high-tech efforts at a breakneck pace, thanks to heavy government subsidizing and a favorable regulatory atmosphere that gives domestic competitors advantages over their foreign peers.  The nation has been accused of resorting to currency and regulatory manipulation to "stack the deck" in its favor.

But that's far from the only way China is reportedly being, to borrow the phrasing of former Sen. Larry Craig, "nasty, bad, naughty" nation.  China is reportedly openly hacking the U.S. for profit, gleefully stealing its government and businesses' financial and technological secrets.  At the same time the nation has been accused of hoarding its vast resource stockpiles in order to drive up profits.

I. China Holds World Hostage With Rare Earth Monopoly

The electronics industry -- deeply dependent on rare earth elements -- had little recourse thus far other than to try to minimize use in their products.  After China cut exports of the 17 prized scarce elements in 2010 by 40 percent, the decision wrought ripples of financial chaos upon manufacturers of everything from flat screen TVs to hybrid cars in the U.S., Europe, Japan, and South Korea.

The problem is driven by the fact that China bought up rights to many of the planet's most rich rare earth deposits in the 1990s and began actively developing.  To make matters worse, it take 5 or more years to bring a rare earth mining facility online -- perhaps as long as a decade to reach full production.  China foresight has become America's frustration

However, the situation may be headed to the breaking point as the U.S., European Union, and Japan have filed a formal World Trade Organization complaint against China, accusing it of hoarding the vital resource.

President Barack Obama (D), who supervised the filing, had harsh words for China in a speech, commenting, "We have got to take control of our energy future and we can't let that energy industry take root in some other country because they were allowed to break the rules."

President Obama
President Obama claims China is "breaking the rules" by manipulating trade supply.
[Image Source: AFP/Getty Images]

In a joint statement, EU Trade Commissioner Karel De Gucht, jabbed, "China’s restrictions on rare earths and other products violate international trade rules and must be removed.  These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications."

II. China Already Has Lost Once This Year Before the WTO

WTO complaints operate something similar intellectual property complaints, albeit on an international sale.  Nations have 60 days to come to a compromise or the matter is passed to arbiters on a WTO settlement board.

Rare earth metals
A binding resolution could force China to stop hoarding rare earth metals in an effort to inflate prices (Neodymium from Chinese-owned Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. factory in Baotou, Inner Mongol is pictured). [Image Source: Nelson Ching/Bloomberg]

The board's resolutions are fairly binding, but can take years to resolve.  A series of complaints filed by the U.S., Mexico, and EU against China was finally ruled upon this year.  The board ruled in that China had acted improperly in fixing supplies of nine raw materials, including zinc, coke (coal byproduct), and magnesium at artificial lows.  The WTO rulings carry serious financial weight, and China has reportedly been relaxing resource supplies since the February ruling was made against it.

However, when it comes to rare earths China is loathe to relax supplies as it's coming to enjoy selling less of the product for the same amount of money, while funneling its extra stockpile to domestic firms.  

III. China Accuses Westerners of Promoting Pollution

China's Ministry of Commerce (MOC) rebutted the rhetoric of President Obama and Commissioner De Gucht, in a written statement claiming that raising exports would harm the environment.  China, a notorious polluter who bats nary an eyelash at its citizens laboring in toxic scrapyards suddenly "found religion", environmentally speaking, when the crisis hits.

Writes the MOC:

Previously, China has been in constant communication and contact with related countries about its export policy on raw material products, and has emphasized repeatedly that the policy aims to protect resources and the environment, and realize sustainable development.  China will properly deal with the request for dispute settlement in accordance with the WTO's settlement procedures.

China Minister of Industry and Information Technology Miao Wei told local news service Xinhua that he felt "pity" for the Americans, stating, "We would feel sorry for their decision to complain to the WTO."

Miao Wei
Chinese IIT administrator Miao Wei says he "feels sorry" for America's efforts, which he says China will crush in court.  He accuses the U.S. and its allies of promoting pollution. [Image Source:]

He says China will fight hard to prevent any sort of mandatory increase in exports.

China has filed 5 complaints against the U.S. before the WTO, while the U.S. has filed 12 against China.  Likewise China filed two complaints against the EU, who has filed 5 complaints against it.

IV. China a Heated Political Issue this Election Cycle

President Obama claims to be actively working to protect the U.S. against Chinese economic malice.  In February he created a new "Trade Enforcement Unit", tasked with policing China and retaliating against unfair policies.  He claims his administration has filed twice as many trade complaints as the administration of former President George W. Bush (R).

However, he has drawn criticism for some for not cutting back on America's subsidy system, which is accused of in effect gifting tax rebates to companies that ship their manufacturing jobs to China.  Critics also say he should be more critical of China's currency manipulation, which had placed American exports at a disadvantage.

Leading Republican presidential hopeful Mitt Romney promises that if he were elected, that on his first day of office he would name China a "currency manipulator".  While the move would disrupt a great deal of U.S. production, possibly impacting the supply chain of Apple, Inc. (AAPL) and others, he says that the consequences are better than allowing China to "steal" American business.

Mitt Romney
Former Mass. governor and Republican presidential hopeful Mitt Romney accuses President Obama of allowing China to steal U.S. jobs.  He says he would declare China a "currency manipulator" and move to cut the U.S. trade with its biggest manufacturing partner.
[Image Source: AP] 

Campaigning in Ohio he accused President Obama of casting a blind eye on the currency manipulation and intellectual property theft, allowing China to "walk all over him".

Alan Tonelson, a research fellow at the U.S. Business and Industry Council, a group that represents U.S. manufacturers, agrees, complaining, "Unless President Obama starts fighting back effectively against these transgressions, China’s market-rigging will keep stealing hundreds of thousands of valuable jobs and untold billions of dollars’ worth of growth that the struggling U.S. economy needs right now."

Sources: BusinessWeek, Xinhua, U.S. Trade Rep.

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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