A new report shows China's move away from
industrialization and construction to consumption and services is happening
much quicker than previously thought
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.
Source: Mining.com