Market Should Stay Stable Following Hu’s Visit

President Barack Obama and Hu Jintao will spend the next couple of days waving to cameras and smiling at the crowds as the Chinese official state to the United States gets underway.

But as the pomp and ceremony  unfolds there will also be time made for conversations between the two leaders on many of the serious tensions that exist between the world’s two biggest economies.

One of the conversations the two heads of state will have concerns rare earth metals. China controls the vast majority of production and many in the west have expressed concern about China’s recent management of the supply of these vital metals,  so important to so many hi-tech applications.

Senator Charles Schumer seems to have been appointed “bad cop” on this issue and has speaking out bluntly over the last few days about China’s need to step up and be a responsible global economic player, including on the issue of rare earth metals.

Might the barking lead to some kind of bite on this issue?

Don’t bet on it say industry experts. Kristin Stapleton, director of Asian Studies at the University of Buffalo, commenting on the rare earth issue in a news report, suggested that while issue will be mentioned between the leaders, it will be little more than mere mention. “Obama will probably reiterate that international companies are dependent on these and then they will move on to something else,” she said.

Which seems to be the basic take on the discussions in the industry itself. Anthony Marchese, principal of Monarch Capital Group (which has holdings in rare earth companies) isn’t expecting anything substantial to follow from the meeting, reiterating a take close to Stapleton’s. “The Chinese won’t alter their policy. The best thing anyone can hope for is some kind of agreement that there won’t be any unreasoanable shift in the flow of these materials. But as for actual concessions from China. I just don’t see that,” said Marchese in an interview with RMB. “The Chinese won’t alter their policy. And I don’t think there’s anything Obama can do.”

For the Chinese the issue is multi-layered, including everything from environmental concerns to trade strategies, and so the question is a complex one without easy obvious answers.

“The reason we don’t have a rare metal earth industry is the predatory pricing on the part of the Chinese,” says Marchese. “If China was to get serious about this and begin cleaning up some of their mines, the cost of environmental compliance would be high, and that would come with its own costs.”