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WASHINGTON — U.S. officials hoping to break China’s near monopoly on the production of rare earth elements needed for many cutting-edge technologies should engage the governments of Central Asia to develop high concentrations of REEs found in the region, says a new report. 

The study by the U.S.-based International Tax and Investment Center warns that a failure to act could leave China with a “decisive advantage” in the sector, which is crucial to green energy, many new weapons systems and other advanced technologies. 

“As the uses for these minerals has expanded, so too has global competition for them in a time of sharply increasing geostrategic and geo-economic tension,” the report says. 

“Advanced economies with secure, reliable access to REEs enjoy economic advantages in manufacturing, and corresponding economic disadvantages accrue for those without this access.” 

China, which accounts for most of the world’s rare earth mining within its own borders, has not yet had to seek additional supplies from Central Asia, which enjoys plentiful reserves of minerals ranging from iron and nonferrous metals to uranium. 

But, the report says, “the massive size of the Chinese economy and the Chinese Communist Party’s conscious efforts to dominate the REE sector globally mean such increases are a matter of time.”  

Oil-rich Kazakhstan, the region’s economic giant, holds the world’s largest chromium reserves and the second-largest stocks of uranium, while also possessing other critical elements.  

Report co-author Ariel Cohen says it is up to the governments of Central Asia to create the investment climate for development of these resources.   

“They may be the next big thing in Central Asia as the engine of economic growth,” Cohen said this week during a panel discussion at the Atlantic Council, a Washington think tank.  

Across Central Asia, experts note, REEs are found in substantial volumes in the Kazakh steppe and uplands as well as in the Tien Shan mountains across Kazakhstan, Kyrgyzstan and Uzbekistan, and in the Pamir Mountains in Tajikistan.  

Monazite, zircon, apatite, xenotime, pyrochlore, allanite and columbite are among Central Asia’s most abundant rare metals and minerals.  

In 2016, the U.S. Geological Survey listed 384 REE occurrences in the region: 160 in Kazakhstan, 87 in Uzbekistan, 75 in Kyrgyzstan, 60 in Tajikistan, and two in Turkmenistan.

Wesley Hill, another expert on Central Asia’s mineral reserves, says production of rare earths at present “is almost wholly monopolized by China.”  

“Depending on how you count, between 80 to 90% of REE refining is controlled by China and done directly inside of China,” Hill said.   

But, he argued, despite China’s heavy involvement in Central Asia, it has yet to fully take over the region’s rare earth sector. “So, this means that Central Asia is very much at a crossroads,” he said. “Central Asia has the opportunity to expand its REE production without being wholly dependent on China.” 

Central Asia is currently in a position where it can develop its REE refining capacities both for its national development strategies and to break the Chinese monopoly, Hill said.  

“But this is only going to happen with good policy, both from the American side and the Central Asian side.”  

Ambassador John Herbst, Washington’s former top diplomat in Uzbekistan and Ukraine, says the region’s REE assets are “simply another reason for enhanced engagement by the West.” 

He said he is not sure that Central Asian governments appreciate how important rare earths can be to their development. “But I do know that the countries of Central Asia want a closer relationship with the United States, and that is one important part of their maintaining their hard-won independence.” 

Herbst added that the United States and Central Asia have a common interest in working together to develop the region’s rare earths “for the economy of the future.” 

“We have an ability to innovate that far exceeds [China’s]. Their innovation is based largely on taking our technology.”

Suriya Evans-Pritchard Jayanti, who serves as energy transition counsel at the U.S. Department of Commerce, says the region is eager for investment. 

“It is a development opportunity. Particularly with the geostrategic energy realignment after the Russian invasion of Ukraine, but also, because of the energy transition. Lithium and other REE are necessary for different parts of that transition. So that’s primarily an economic incentive,” she said. 

She pointed to the Mineral Strategic Partnership Initiative run by the U.S. State Department’s Bureau on Energy Resources, which is able to promote foreign direct investment in the region while providing technical assistance in the mining sector. 

Cohen said the Central Asian countries cannot wait long to develop their rare earths. “There is a competition, and the African countries, Latin American countries and others will compete increasingly.”  

Wilder Alejandro Sanchez, who heads a consultancy called Second Floor Strategies, says Central Asia needs a rare earth research center that can provide timely information to prospective customers and investors.  

Transportation is key, Sanchez said. “It’s not just about finding and mining them. You have to get them to the international market.”  

Access from the landlocked region at present is limited to China’s Belt and Road infrastructure or routes through Russia. Sanchez and others recommend using the Middle Corridor, also called the Trans-Caspian International Transport Route, which can carry goods to Europe across the Caspian and Black seas.  

These experts also say progress will depend on regional governments overcoming their traditional secretiveness regarding natural resources. They emphasize the importance of transparency, the rule of law, adherence to best practices and compliance with international norms if they hope to attract Western investment.
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WASHINGTON — The U.S. economy grew at an unexpectedly brisk 3.3% annual pace from October through December as Americans showed a continued willingness to spend freely despite high interest rates and price levels that have frustrated many households. 

Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated from its sizzling 4.9% growth rate the previous quarter. But the latest figures still reflected the surprising durability of the world’s largest economy, marking the sixth straight quarter in which GDP has grown at an annual pace of 2% or more. 

Consumers, who account for about 70% of the total economy, drove the fourth-quarter growth. Their spending expanded at a 2.8% annual rate, for items ranging from clothing, furniture, recreational vehicles and other goods to services like hotels and restaurant meals. 

The GDP report also showed that despite the robust pace of growth in the October-December quarter, inflationary measures continued to ease. Consumer prices rose at a 1.7% annual rate, down from 2.6% in the third quarter. And excluding volatile food and energy prices, so-called core inflation came in at a 2% annual rate. 

Those inflation numbers could reassure the Federal Reserve’s policymakers, who have already signaled that they expect to cut their benchmark interest rate three times in 2024, reversing their 2022-2023 policy of aggressively raising rates to fight inflation. 

“Although GDP growth came in hotter than expected in the fourth quarter, underlying inflation continued to slow,” said Paul Ashworth, chief North America economist at Capital Economics. “The upshot is that an early spring rate cut by the Fed is still the most likely outcome.” 

The state of the economy is sure to weigh on people’s minds ahead of the November elections. After an extended period of gloom, Americans are starting to feel somewhat better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect voters’ decisions. A measure of consumer sentiment by the University of Michigan, for example, has jumped in the past two months by the most since 1991. 

There is growing optimism that the Fed is on track to deliver a rare “soft landing” — keeping borrowing rates high enough to cool growth, hiring and inflation yet not so much as to send the economy into a tailspin. Inflation touched a four-decade high in 2022 but has since edged steadily lower without the painful layoffs that most economists had thought would be necessary to slow the acceleration of prices. 

The economy has repeatedly defied predictions that the Fed’s aggressive rate hikes would trigger a recession. Far from collapsing last year, the economy accelerated — expanding 2.5%, up from 1.9% in 2022. 

“Our expectation is for a soft landing, and it looks like things are moving that way,” said Beth Ann Bovino, chief economist at U.S. Bank. Still, Bovino expects the economy to slow somewhat this year as higher rates weaken borrowing and spending. 

“People are going to get squeezed,” she said. 

The economy’s outlook had looked far bleaker a year ago. As recently as April 2023, an economic model published by the Conference Board, a business group, had pegged the likelihood of a U.S. recession over the next 12 months at close to 99%. 

Even as inflation in the United States has slowed significantly, overall prices remain nearly 17% above where they were before the pandemic erupted three years ago, which has exasperated many Americans. That fact will likely raise a pivotal question for the nation’s voters, many of whom are still feeling the lingering financial and psychological effects of the worst bout of inflation in four decades. Which will carry more weight in the presidential election: The sharp drop in inflation or the fact that most prices are well above where they were three years ago? 

The Fed began raising its benchmark rate in March 2022 in response to the resurgence in inflation that accompanied the economy’s recovery from the pandemic recession. By the time its hikes ended in July last year, the central bank had raised its influential rate from near zero to roughly 5.4%, the highest level since 2001. 

As the Fed’s rate hikes worked their way through the economy, year-over-year inflation slowed from 9.1% in June 2022, the fastest rate in four decades, to 3.4% as of last month. That marked a striking improvement but still leaves that inflation measure above the Fed’s 2% target. 

The progress so far has come at surprisingly little economic cost. Employers have added a healthy 225,000 jobs a month over the past year. And unemployment has remained below 4% for 23 straight months, the longest such streak since the 1960s. 

The once red-hot job market has cooled somewhat, easing pressure on companies to raise pay to keep or attract employees and then pass on their higher labor costs to their customers through price hikes. 

It’s happened in perhaps the least painful way: Employers are generally posting fewer job openings rather than laying off workers. That is partly because many companies are reluctant to risk losing workers after having been caught flat-footed when the economy roared back from the brief but brutal 2020 pandemic recession. 

“Businesses are getting rid of job openings, but they’re holding onto workers,” Bovino said. 

Another reason for the economy’s sturdiness is that consumers emerged from the pandemic in surprisingly good financial shape, partly because tens of millions of households had received government stimulus checks. As a result, many consumers have managed to keep spending even in the face of rising prices and high interest rates. 

Some economists have suggested that the economy will weaken in the coming months as pandemic savings are exhausted, credit card use nears its limits and higher borrowing rates curtail spending. Still, the government reported last week that consumers stepped up their spending at retailers in December, an upbeat end to the holiday shopping season. 
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BRUSSELS — The European Union on Wednesday unveiled plans to strengthen the bloc’s economic security, including measures to protect sensitive technology from falling into the hands of geopolitical rivals such as China. 

Brussels has bolstered its armory of trade restrictions to tackle what it deems to be risks to European economic security, following Moscow’s invasion of Ukraine and global trade tensions. 

The fallout from the war in Ukraine hit Europe particularly hard, forcing the bloc to find alternative energy sources. Now, it wants to avoid a similar over-reliance on China, which dominates in green technology production and critical raw materials. 

On Wednesday, EU officials outlined an economic security package containing five initiatives, including toughening rules on the screening of foreign direct investment and launching discussions on coordination around export controls. 

The EU has already proposed new rules that it says are necessary to keep the bloc competitive during the global transition to clean technology and to bring more production to Europe. 

“In this competition, Europe cannot just be the playground for bigger players, we need to be able to play ourselves,” said the EU’s most senior competition official, Margrethe Vestager. 

“By doing what we are proposing to do, we can de-risk our economic interdependencies,” she told reporters in Brussels. 

Wednesday’s package is part of the EU’s focus on de-risking but not decoupling from China, pushed strongly by European Commission President Ursula von der Leyen. 

“The change in EU-China relations has been the driving force of this embrace of economic security, which is something extremely new for the EU,” said Mathieu Duchatel, director of international studies at the Institut Montaigne think tank. 

“Focus on riskier transactions” 

EU officials also pushed back on claims that the package had been watered down and that some of the initiatives would kick in too late. 

One of the initiatives is to revise the EU’s regulation on screening foreign direct investment, but others recommend further discussions, raising concerns that action could come too late. 

For example, the commission said it wanted to promote further discussions on how to better support research and development of technologies that can be used for civil and defense purposes. 

The EU also wants all member states to establish screening mechanisms, which could later lead to investments being blocked if they are believed to pose a risk. 

“I would not agree that the package is watered down,” the EU’s trade commissioner, Valdis Dombrovskis, said. 

He later said the EU wanted “to focus on riskier transactions and spend less time and resources on low-risk ones.” 

The negotiations are likely to prove a delicate balancing act for the commission. Investment and export control decisions are up to national governments; therefore, it must avoid overstepping its mark. 
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BANGKOK — China’s central bank said Wednesday it will cut the amount of reserves it holds for banks as part of a slew of measures to support the slowing economy.

The announcement by the governor of the People’s Bank of China prompted a surge in share prices, with Hong Kong’s benchmark jumping 3.6%.

Chinese stock markets have languished in recent months as investors pulled money out, discouraged by a faltering recovery from the shocks of the COVID-19 pandemic.

A sell-off earlier in the week was followed by unconfirmed reports that the government planned to get state-owned investment companies to funnel offshore funds into the markets to help staunch the losses. The central bank’s moves appear to be part of a concerted effort to stabilize the markets and instill greater confidence in the outlook for the world’s second-largest economy.

Central bank Gov. Pan Gongsheng told reporters in Beijing that the deposit reserve requirement would be cut by 0.5 percentage points as of Feb. 5. Pan said that would inject about 1 trillion yuan or $141 billion into the economy. As of December, the reserve requirement ratio was 7.4%.

Unlike bank reserves — the cash banks must keep on hand to cover unexpected demand — these reserves are held by the central bank and used mainly as a monetary policy tool.

Such changes are usually conveyed in a written notice by the central bank, not at a news conference.

Pan said the central bank also plans to issue a policy soon on lending to property developers to help support the industry.

China’s economy is recovering, he said, allowing ample room for policy maneuvers.

“At present, our country’s financial risks are generally controllable, the overall operations of financial institutions are sound, and financial markets are operating smoothly,” the government website China.com cited Pan as saying.

The economy expanded at a 5.2% annual pace in the October-December quarter, enabling the government to attain its target of about 5% annual growth for 2023. But the recovery remains uneven, and most forecasts say the economy will grow more slowly in 2024.

Chinese leaders have been talking up the economy in an all-out effort to counter such expectations.

Initial reactions were cautious.

Mark Williams of Capital Economics said the latest moves would “provide only a small boost for China’s economy.”

“Meaningful improvements in household or corporate borrowing would require substantial rate cuts or a significant change in economic sentiment. Neither seems likely in the near future,” he said in a commentary.

The slow pace of the recovery after China dropped stringent anti-virus precautions in late 2022 has added to gloom over a crisis in the once-booming property market as dozens of developers defaulted on loans after the government cracked down on excessive borrowing a few years ago.

That has left many Chinese families who had invested their life savings in unbuilt homes in limbo, unsure if the developers would deliver those apartments.

There have been some signs of improvement: Last week, the government resumed its reporting on the rate of unemployment among young people, which stood at a record 21.3% in June. According to a revised methodology, the latest youth unemployment rate was 15%. Overall unemployment stood at 5.1%.

Many youths also were left without work after the government cracked down on technology companies, which tended to hire younger workers. More recently, moves to impose more controls on online gaming spurred massive sell-offs of game company shares, leading the authorities to apparently backpedal on that plan.

The Federal Reserve and other major central banks have been raising interest rates and finding other ways to raise the cost of borrowing to help stem inflation, which peaked at 9.1% in mid-2022 in the United States. Central banks are now easing their monetary policies as price pressures abate.

In China, regulators are grappling with the opposite problem, a risk that weak demand will cause prices to spiral lower, discouraging investment and hobbling growth. The moves by the central bank this week will ease credit and pump money into the economy to try to spur businesses and consumers to start spending more.

China’s loan prime rate is now 3.45%. It’s the lending rate commercial banks give their highest quality customers and is a benchmark for other loans. The Federal Reserve’s benchmark rate is about 5.4%.

The central bank cut the reserve requirement twice in 2023, by 0.25 percentage points each time. A key policy tool for controlling the amount of money circulating in the economy, it peaked at more than 20% in 2011 and now is at its lowest level since the early 2000s.

“The authorities will likely launch more measures to stabilize market sentiment, such as mobilizing state resources to support the stock market,” Raymond Yeung of ANZ said in a report. “The authorities are clearly concerned about market sentiment.”

He noted that the central bank is also acting to avoid a weakening in the Chinese currency, the yuan. Pan told reporters in Beijing that the PBOC would ensure the yuan’s value remains stable.

Like many other analysts, Yeung said the latest moves might not be enough to fully reassure investors and that more needs to be done to foster wider reforms.

“This requires some structural measures to boost private sector confidence and the long-term outlook of the real estate sector,” he said. “The measures announced so far do not seem sufficient.”
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