During past decade this Asian giant has emerged as the workshop of the world, manufacturing everything from ear-buds to steel castings to light aircrafts and ships. This demand has been huge. As more ships leave the Chinese ports laden with manufactured goods, many more ships filled with raw commodities take berth.
Remarkably, this demand continues to be there. China, in spite of all the talk about its manufacturing sector facing tough challenges due to the global slowdown, rising production costs, tight credit conditions, power shortages and currency appreciation, continues to produce massive quantities of finished goods. Millions of small and big, low and high value consumables continue to be produced there for supermarkets in every nook and corner of the world. The recent numbers show that this Asian economic powerhouse is producing and trading finished goods with the same zest as has been seen during past half a decade. According to the latest statistics, during the first half of this year the output of steel has gone up to 299.96 million tonnes (up 12.51 percent year-on-year) and cement production has risen to 648.05 million tonnes (up 8.7 percent year-on-year). Output of large power plants has risen to 1.68 trillion kw/hr, up 12.9 percent year-on-year. Autos imports have risen to $16.333 billion, up 39.64 percent year-on-year, while exports have grown to $24.776 billion, up 39.45 percent. Machinery output has gone up 21.6 percent year-on-year by value. Coal imports have gone up to 24.94 million tons in spite of the average price jumping by 51.9 percent to $70 per tonne. Soybean imports have hit 20.73 million tons even as the average price going up 78 percent to $591.70 per ton. These numbers are likely to grow bigger during the coming years as China continues to build and expand new capacity. The current host of Olympic games has year to date approved the establishment of 16,891 overseas-funded enterprises, soaking up $60.724 billion U.S. dollars (up 44.54 percent y-o-y) of new FDI money.
The same period has also seen the construction of 3.695 billion square meters of floor space. And unlike the United States where the inventories are piling up and new construction slowing down thus resulting in diminishing value, the prices are climbing in China. The latest reports from Beijing show that the housing prices went up 7% in major Chinese cities during July 08. According to the National Development and Reform Commission (NDRC) and the National Bureau of Statistics, the prices of real estate in 70 major Chinese cities rose 7.0 percent in July on the same month of last year. (The price rise was 11.3 percent in January, 10.9 percent in February, 10.7 percent in March, 10.1 percent in April, 9.2 percent in May and 8.2 in June.) Simultaneously, the prices of second-hand houses gained 6.0 percent year on year. I don't need to emphasize that the rising housing prices are an indication of the feel good factor among the people, which automatically translates in construction of more houses and offices and development of infrastructure - all of which leads to extra consumption of commodities.
Of course the Chinese are not just buying the houses, they are also buying things to fill them. No wonder, China's domestic retail sales leaped a brisk 23.3 percent to 862.9 billion yuan ( 125.8 billion U.S. dollars) in July this year. According to the National Bureau of Statistics, this brought China's retail sales of consumer goods in the first seven months of this year to 5.9672 trillion yuan, up 21.7 percent, compared with 15.5 percent growth rate recorded over the same period of last year. Here I must pause and inform that unlike India where the growth in rural and urban regions is poles apart, the Chinese growth is more evenly distributed; as a result, while the urban consumption is up 24 percent year-on-year, the rural consumption is only a whisker behind at 21.8 percent up - a very bullish sign, given the size of the rural Chinese population.
Goes without saying, there is little likelihood of Chinese consumption waning to a level where it will contribute to a meltdown in commodity prices. It is true that there may be a miniscule reduction in its commodity consumption arising out of the fall in GDP growth from about 11% to about 10% (as is being widely expected), but that may not be sufficient to bring the prices down to a level that would make the commodity bears rejoice.
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