China’s Purchasing Managers Index rose for a sixth straight month today, up to 54 from 53.3 in July. On the one hand, this means China’s recovery proceeds apace. On the other, there are concerns about foundation the recovery rests on, in particular its dependence on loan growth driven by stimulus funds. Jerry Lou, a strategist at Morgan Stanley, has issued a public warning to avoid investing in mainland banks or real estate, arguing that because the improved performance of these sectors is so policy-dependent, recent nervous heming and hawing emanating from Beijing about property and investment bubbles are likely to have an outsize effect on their profit margins. Another cause for concern: China looks to be reserving the rare earth metals it produces for domestic use, in particular elements used to produce hybrid vehicles like the Toyota Prius and certain weapons technologies. This will not only protect domestic supplies but also coerce foreign manufacturers who require such metals for their components to relocate to China. The risk Beijing runs is that Australia will now deny Chinese proposals to acquire stakes in Australian miners Lynas and Arafura Resources, which have a total output equal to 25% of the world’s current total production.