REPEAT: MNI INTERVIEW: China Could Use Rare Earth Weapon

By Iris Ouyang

     BEIJING (MNI) - China could hit back at U.S. tariffs by restricting the

export of rare-earth metals, an essential component of electronic goods

including mobile phones, a leading Chinese expert on China-U.S. relations and

former deputy head of a government think tank said in an exclusive interview.

     "China basically dominates the rare-earth market, providing 85% to 95% of

annual global demand. That gives China great power over the elements used in

most high-tech devices," said Jin Canrong, deputy director of the National

Association of International Studies.

     "The more high end chips are, the more rare-earth metals are needed," said

Jin, who used to serve as deputy head of the U.S. Studies Department of the

China Academy of Social Sciences and is deputy head of the International

Relations School at Renmin University of China.

     China could also restrict exports of other key supply chain components,

including those of the healthcare sector, Jin told MNI on the sidelines of the

Taihe Civilizations Forum.

     --RESTRICTED ACCESS

     Should the dispute with Washington escalate into a full-blown trade war,

China could also consider increasing restrictions on U.S. investment in China.

     "China has the option to reduce American companies' market share in China.

That would be terrible for the outlook of American markets because China is the

largest market in the world," Jin said, echoing comments from other trade

advisors and experts MNI contacted.

     But China would refrain from extending the trade war to the financial

sector as U.S. dominance in that sector would leave Beijing at a disadvantage,

Jin told MNI.

     Recent U.S. sanctions on Chinese smartphone maker ZTE have exposed China's

reliance on high tech imported semiconductors, and Jin said Chinese

manufacturers might have to resort to using domestic-made chips of a lower

specification until the country produces enough of its own high-end chips, in

five years or so.

     --DIVERSIFY MARKETS

     China can also continue to diversify its export markets, Jin said.

     Former head of the People's Bank of China Zhou Xiaochuan said last week the

central bank had advised the government to direct exports to other countries and

away from the U.S.

     China is also keen to increase trade and economic cooperation with other

nations through continued development projects along the One Belt One Road

initiative and events such as this month's China-Africa Forum.

     China-Japan relations are also seen improving ahead of Japanese Prime

Minister Shinzo Abe's scheduled visit to China in October.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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