China soft landing likely, says World Bank

The Chinese economy is likely to land softly, rather than with a jolt, with growth forecast at 8.2% this year and 8.6% in 2013, according to The World Bank.

In its quarterly China update, the World Bank said that China, whose thirst for raw materials is a crucial driver for the mining and energy industries, is in the midst of a gradual slowdown due to a combination of a weaker global economic environment and tighter domestic policies.

The report says that slow growth in the euro zone and sluggish recovery in the US has made Chinese exports decelerate more rapidly than imports. Investment in infrastructure and real estate in China has also dampened, though consumption growth remains robust. Inflation, an ongoing concern with Chinese authorities, has been declining, both for food and non-food prices.

The World Bank says that while the prospects for a soft landing remain high, "there is concern is that growth slows too quickly."

Looking ahead, the report says as world trade continues to remain weak, external demand will suck 0.3 percentage points from Chinese growth this year. Inflation is expected to trend downward to 3.2% and the country's current account surplus is projected to rise slightly to 3% in 2012 and 3.3% in 2013.

The projection is better than last month's forecast that China will grow just 7.5% this year, the lowest level since 2004. China recorded GDP growth of 9.2% in 2011 and annual growth has averaged 10.4% since 2001, peaking in 2007 at 13%. Mining’s top companies were all marked down significantly in March after BHP Billiton said that China’s steel growth rates “will flatten, and they have flattened.”

China dominates the global trade in just about every commodity including iron ore (representing more than half of world trade), copper (38%), coal (47%), nickel (36%), lead (44%) and zinc (41%).

BHP's competitor, Vale SA, provided a more upbeat view to BHP's downbeat forecast this week, with the company's CEO, Murilo Ferreira, telling reporters “Those who have been betting against Chinese growth since the 1990s will be wrong again. China is just getting going.” His statement came a day after the International Monetary Fund (IMF)  predicted that commodity prices will decline during 2012-13 adding that “sizeable downside risks to global growth also pose risks of further downward adjustment in commodity prices.”

More good news came today on the copper front, according to a report by Bloomberg saying that shortages of the red metal combined with accelerating U.S. growth will drive prices higher next quarter.

Even with the lower Chinese growth targets, China, the world's largest copper buyer, will still expand at more than twice the global pace predicted by the IMF, Bloomberg reported.