China’s economic growth is expected to slow to 7% in 2015 and may even slip below that – the slowest pace since 1990.
While slower overall growth has long been expected, the transformation of China from an investment-led to a consumption driven economy appears to be happening much quicker that previously thought.
After the years of breakneck infrastructure investment, urbanization and industrialization that created the supercycle in commodity demand, Beijing is now shifting focus of policy to the services-orientated sectors of the economy.
A chart from oil giant BP’s Statistical Review of World Energy 2014 report shows how the energy intensive sectors of the Chinese economy “virtually collapsed”.
This strategy of curbing the once red-hot property sector and placing restrictions on heavy industry also ties in with the government’s fight against pollution after years of devastating environmental damage.
And much of the country’s so-called war on pollution is centred on coal where the change in direction is just as startling.
Spencer Dale, BP’s chief economist, commented that China’s rapid urbanization and industrialization turned coal into the fastest growing fossil fuel over the first decade or so of this century.
“And it was equally true in 2014 as Chinese demand braked sharply and coal became the slowest growing fossil fuel,” says Dale.
Global coal consumption grew by just 0.4% (15 million tonnes oil equivalent or Mtoe) – its slowest rate since the Asian crisis in 1998 – while production fell by 0.7% or 28 Mtoe.
Dale says “perhaps the single most striking number in the whole of this year’s Stats Review is China’s coal consumption, which is estimated to have essentially stalled in 2014.”
China, which burns almost as much coal as the rest of the world combined, saw only a 0.1% (1 Mtoe) increase, compared to an average growth rate of almost 6% over the past 10 years. Chinese coal production was even weaker, falling by 2.6% or 49 Mtoe.
The world’s top mining firms have already started to adjust their strategies to the new reality.
Andrew Mackenzie, CEO of BHP Billiton, told a conference in Beijing in June last year he expects rising Chinese demand for materials with more consumer uses, such as copper, while greater food consumption could lead to more demand for the soil nutrient potash:
“We see a Chinese economy gradually shifting from construction to consumption, and so, we will transition,” said Mackenzie adding that “We imagine we will continue to creep our exports of steelmaking materials like metallurgical coal and iron ore, but we’re much more likely to make major investments in what we feel are the next phase of China’s growth in energy and in food.”
Despite the moderating growth it’s worth remembering that China would still be adding some $700 billion to gross domestic product (and that’s excluding Hong Kong) this year.
That’s greater than the size of mainland China’s entire economy in 1994 when growth rates peaked at a stunning 30% year-on-year. $700 billion is also bigger than Switzerland’s economy and worth almost 2 South Africas and 4 New Zealands.
It may be a different beast, but China’s growth story is not over.
There is no new report of some CEO inspired forward view, is just the 13th Five Years Plan issued by the Government.
This whole article is suspect. It massages statistics to make some kind of a phoney point.
China is still making the Apple Watch for less than $100 USD, and Apple is selling them like hotcakes to the US and European consumers. Have you looked where your shoes and underwear come from…. How about your monitor, or your TV, and the pen you take notes with….China is doing Okay. They are buying gold and other commodities with the hoard of US$ they have. When inflation starts up, which it will, the dollar will collapse to near record lows against other curriencies… and China will say “well…we spent most of our USD on copper and other commodities last year…would you like to buy some of our excess at 5 times what we paid? The price will go up in year two. Few good-paying jobs in the US = DISASTER! Forget gold…buy bullets.
Arnold van den Hurk
The “collapsing” is not the growth of China. Following the figures China is collapsing the RATE of growth, but still growing, better than westerns …
I agree with Arnold. China is still growing at an overall increase much significantly than any other nation. Even though they may not be increasing GDP by +10% as they have in recent years, still increasing by 7% with a population of 1.2B is a much larger number than any other country in the world. To discuss more about China with the demand and supply of commodities visit chat.ceo.ca or chat.ceo.ca/china