China is Preparing for a New 'Long March'
Another day, another 'trade war' escalation… Xi sends a message… China is preparing for a new 'long march'… Don't hold your breath on a quick resolution…
On Monday, we noted the ongoing 'trade war' between the U.S. and China had taken another turn for the worse...
Following news that U.S. President Donald Trump formally "blacklisted" Chinese telecom giant Huawei, we suspected that China would likely retaliate with an aggressive move of its own.
As it turns out, this may already be underway... You see, that same day, Chinese President Xi Jinping paid a rare but highly publicized visit to JL MAG Rare-Earth Company.
Why does this matter? As you may know, rare earth elements have a number of critical industrial uses. And it just so happens that 80% of U.S. rare earth imports come from China.
In other words, this visit was likely meant to send a message. As Bloomberg reported...
President Xi Jinping's visit to a rare earths facility fueled speculation that the strategic materials could be weaponized in China's tit-for-tat with the U.S. on trade... Xi was accompanied on the trip to JL MAG by Liu He, the vice premier who has led the Chinese side in the trade negotiations.
The visit "sends a warning signal to the U.S. that China may use rare earths as a retaliation measure as the trade war heats up," Yang Kunhe, analyst at Pacific Securities Co., said by phone from Beijing. That could include curbs on rare earth exports to the U.S., he said...
Restrictions on rare earth materials from China would hurt its domestic miners. But curbs could potentially help companies like JL MAG, which makes magnets containing rare earths that are used in products including electric vehicles and wind turbines.
But this isn't the only sign that China is 'digging in' for a fight...
On Tuesday, Xi and Vice Premier He made another highly-publicized stop. This time, they visited a memorial to the "Long March," one of communist China's most formative events.
Again, like Monday's visit, this one may have been meant to send a message to the White House. Our colleague C. Scott Garliss explained the potential significance of the move to Stansberry NewsWire readers this morning...
Chinese media released a video clip of President Xi Jinping calling on China to take part in a "new Long March"... Xi was referring to the Long March in 1934-1935 when China's Red Army was being pursued by the Chinese Nationalist Party. The army was on the verge of being wiped out and decided to trek across treacherous terrain to avoid its adversary.
During the march, Mao Zedong stepped into a prominent leadership role and never looked back. The march was important because it allowed the army to survive, reform, and win the respect of the Chinese people. This would ultimately lead to the communist takeover of the government and China in general.
The clip shows Xi visiting a memorial that marked the starting point of the march and laying a floral arrangement there, paying tribute to the memory of those soldiers. He said, "We are now embarking on a new Long March, and we must start all over again."
Some investors think this implies China has no intention of pursuing trade talks any further, even after China's ambassador to the U.S. said yesterday that China is ready to sit down at the negotiating table.
Finally, just this morning, China announced another, more concrete move...
The country's finance minister said it will offer a five-year tax break to Chinese semiconductor and software companies – the companies most likely to be immediately hurt by the White House's recent measures.
This also suggests China is expecting anything but a quick resolution to the turmoil.
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Brill comment: Porter shared his "secret" in two Digests earlier this year. If you missed them, you can catch up here and here.
Regards,
Justin Brill
Baltimore, Maryland
May 22, 2019