Commodities Set to Absorb Losses Over China’s Cooling Down Efforts
Commodities-focused firms have reasons to worry as analysts were in agreement that China is headed this year to a soft landing, early on announcing to limit its growth by no more than 8.5 percent as expressed when the National People's Congress reconvened this month.
The cooling down was self-designed, Bloomberg said on Sunday, as Premier Wen Jiabao made himself clear early in March that China's economy will be reoriented this year from mostly expansion to better consumer activities while at the same time fuelling moderating growth.
So long as China's home prices remain beyond the levels seen by economists as unreasonably high, the pronounced economic policy will stick for the rest of 2012, Wen reiterated by mid-March.
The outgoing Chinese leader would want to leave behind a breed of new leaders dealing comfortably with economic issues, analysts said, and reversing a policy that has yet to gather enough traction would only spawn confusion.
Besides, as Bloomberg has reported, Beijing holds the necessary cards for its economic gambit to play out in full, which economists said was necessary to avert the overheating of the second biggest economy in the world and in the long-term sustain the country's gains in many years ahead.
The immediate results would be clearly apparent, with the markets absorbing the glaring but managed declines of the Chinese economy.
U.S. and Euro stocks plunged as China commenced unveiling its economic path this year by rationalising the country's fuel prices, meaning allowing the product to surge and reach levels that economists said were the highest over the past two years.
Shortly to follow were curbs in capital spending, which should impact heavily on infrastructure build-ups that analysts said will shrink by at least 25 per cent by the end of the year, reducing China's demands for key commodities such as iron coal and iron ore.
"The super commodity cycle that was driven by China is moderating, and exporters that have ridden the property boom over the last four or five years face a much tougher time," Nicholas Lardy of Peterson Institute for International Economics in Washington told Bloomberg.
However, Mr Lardy is convinced too that despite its efforts to put a lid on its expansion, China's growth would remain within the reasonable sphere as allowed by its solid assets that were acquired through years of relentless economic gains.
In effect, China would be able to wield all the powers at its disposal, defined by Mark Mobius of the Templeton Emerging Markets Group in Hong Kong as monetary, fiscal and regulatory ammunition, to calibrate growth as it so desired.
"They have a high savings rate, debt levels are low and that means they are in pretty good shape," Mr Mobius was reported by Bloomberg as saying.
While such good news may ease the rattles created by China's economic direction for 2012, industries that have attached their growth on China's activities will definitely succumb to some form of hits, analysts said.
Australia and Brazil will definitely feel the crunch of lower commodities orders coming from China and their respective currencies taking noticeable hits, economists said, with giant commodities providers such as BHP Billiton and Glencore already feeling the pinch.
Both firms have reported of lower shares values this year, losing more than 20 per cent from last year's level, Bloomberg said.
The only upside in China's aim of re-engineering its economy was the expected boost on soft commodities, grown produces such as corn and wheat, which according to Jenny Tian of Springs Capital Ltd in Hong Kong "may in fact benefit from dietary changes and upgrades, boding well for agricultural- related sectors."
The declines, however, will not last for too long as Andy Mantel of Hong Kong's Pacific Sun Advisors believes that Beijing will ensure that hard landing will not mar its economic agenda this year.
"People's expectations are too high, and you have to allow China to grow as it can," Mr Mantel told Bloomberg.