CHINA’S commodities bull story which has held everyone’s attention in recent years, is far from over. In the near future, the Asian giant’s growth could be even stronger than the scorching rate so far.
Support for this extremely optimistic view is drawn from China’s Communist party endorsement of doubling the country’s GDP per capita by 2010 as compared with the year 2000.
China has been one of the key drivers of the commodity market in the recent years. With economic buoyancy, rapid industrialisation and urbanisation came a strong demand for a wide range of commodities including energy (crude), base metals (copper, zinc) and agricultural goods (vegetable oil, soyabean, sugar, cotton).
The latest report of China’s Communist Party plenum endorsing the country’s goal of doubling its GDP per capita has sent a fresh wave of excitement and apprehension in commodity markets. The endorsement would imply a per capita real GDP figure of $7,687 (purchasing power parity adjusted).
Strong manufacturing and construction activity has driven Chinese metals’ demand and continues to do so as reflected in robust fixed asset investment and industrial production.
Although demand for copper has risen substantially over the years, yet the per capita demand is still considerably low vis-à-vis Asian neighbours such as Japan, South Korea and Taiwan.
Despite being a large producer, importer and consumer, China’s per capita consumption of many commodities is modest primarily because of a large population (1.3 billion), modest income levels and large rural population.
With the country set to pursue the objective of doubling GDP per capita, demand for a whole range of commodities — agricultural and industrial — is sure to soar.
For instance, copper consumption of a mere 1.9 kg per capita would more than double to 4.6 kg per capita by 2010 which would mean 6.3 million tonnes per annum.
In case of energy too, of which China is the world’s second largest consumer, demand will more than double in the next 20 years, with extension of the energy infrastructure boosting aluminium and copper demand, experts assert.
For the world market that is already reeling under a bull run in many commodities, the latest China story is sure to provide a further shot in the arm. The report is highly supportive to prices.
What is unclear at this point in time is to what extent it would impact the widely expected global economic slowdown due to high crude prices and what would be exchange rate policy China would follow.
G. Chandrashekhar
Source: Hindu Business Line
Photo credit: World Economic Forum via Visual Hunt / CC BY-NC-SA
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