China puts pandemic behind it, strives to achieve less commodity-intensive growth

Workers make protective masks at a factory in Handan, Hebei Province, China, January 22, 2020.

China Daily via REUTERS

BEIJING – While much of the world is still dealing with the coronavirus pandemic, the Chinese economy is showing signs that it has already reached the peak of a local recovery.

One sign that the initial outburst is over lies in commodity prices. According to pre-pandemic data from 2019, China is easily the world’s largest buyer of copper, and the country’s demand is affecting prices worldwide.

Buyer achieved its highest price in about a decade at the end of last month. According to data from the London Metal Exchange, prices have fallen by about 6% since then.

The price increases for more obscure metals cobalt and lithium, which are used in the production of electric car batteries, have also dampened.

“China remains a major source of commodity demand, but one that is expanding more slowly,” Institute of International Finance analysts said Tuesday. They pointed out that Beijing, in contrast to policies that fostered a rise in commodity prices or a ‘super-cycle’ more than a decade ago, used more conservative stimulus measures to address the pandemic.

In the future, analysts expect China to use “policy stimulus more sparingly” and grow at a slower pace of 5% to 6%, which will not increase growth in emerging markets as much as the country has had in the past.

Chinese authorities also want to shift the dependence on the economy to consumption, and away from more traditional industries such as manufacturing that require more commodity purchases.

The recent demand for commodities is driven by continued fiscal stimulus abroad, while China’s efforts to reduce carbon emissions have limited the availability of some stocks, said Hangzhou-based Nanhua Futures-based commodity analyst Gu Shuangfei. , limited. Gu expects prices to rise slightly in the short term, but profits will ease as overseas production recovers.

Beyond the ‘peak’ of recovery

The data released on Monday for January and February showed that investment in manufacturing and infrastructure had fallen on an annual basis over the past two years, while retail sales grew by 3.2%.

“Jan-Feb economic data indicates the economy remains resilient, although the peak of recovery is behind us,” Macquarie chief economist Larry Hu and a team said in a note Monday, adding that the primary policy objective will be to limit China’s dependence on debt for growth.

Macquarie analysts wrote in a separate note earlier this month that the removal of some policy support for the economy was already slowing growth.

China was the only major economy to expand in 2020, with GDP growth of 2.3%. This is despite a 6.8% contraction in the first quarter, when the country was the first in the world to deal with the pandemic and its restrictions on business operations.

China’s economy returned to growth – of 3.2% – in the second quarter of last year, as business was allowed to gradually resume after strict closing measures. As overseas factories continue to struggle with pandemic-related constraints, the huge global demand for Chinese-made personal protective equipment and other products has also helped increase China’s exports and total GDP.

Uncertainty about future revenues led to a contraction in retail sales last year. The urban unemployment rate also rose from 5.2% in December to 5.5% in February, while the age category 16 to 24 posted a much higher unemployment rate of around 13% last month.

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