Sunday, September 23, 2012

China GDP

Michael Pettis writes about an expected drop in commodity prices; I agree with him. Chinese demand for infrastructure related commodities will drop and Rio Tinto, others and Australia are already feeling the heat. But what caught my eye in his post was:

"
China currently is the leading consumer of a wide variety of commodities wholly disproportionate to its 

share of global GDP. The country represents roughly 11% of global GDP if you accept the stated

numbers, and substantially less if you believe, as I do, that growth has been overstated because of 

the difference over many years between reported investment, i.e. its input value, and the actual 

economic value of output."


Emphasis is mine. This, I believe, is the main cause of many mismatches between values and perceptions across the Chinese market.

He goes on:
"China nonetheless accounts for between 30% and 40% of total global demand for commodities like 

copper and nearly 60% of total global demand for commodities like cement and iron ore.
The only reason China has provided such an extraordinarily disproportionate share of global demand

for hard commodities has been the nature of China’s growth model. While China may represent only 
11% or less of the global economy, it represents a far, far greater share of the world’s building of 
bridges, railroad lines, subway systems, skyscrapers, port facilities, dams, shipbuilding facilities, 
highways, and so on.
Over the next decade, two things are going to change. The first is increasingly recognized, and 
that is that Chinese growth rates will drop sharply. The second is that China will rebalance its 
economic growth away from its appetite for commodities."

He ends with:
"One way or the other, however, we are going see a big change in the distribution of winners and
losers."
Lovely post.

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