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CANADIAN MINING PERSPECTIVES: Economic slowdown hits China in short term

Turmoil in the western financial markets has touched even China. Tight credit has slowed the domestic property sect...


Turmoil in the western financial markets has touched even China. Tight credit has slowed the domestic property sector which is responsible for a large part of that country’s robust economic growth. But don’t despair. China’s slowdown is expected to be short term, with a return to growth over the medium term.

Part of the Chinese slowdown is due to the fact that the intense effort to produce the 2008 Beijing Olympics meant postponing other development projects. They will probably get moving in the medium term.

The Chinese government began actions to stem inflationary pressure when it tightened monetary policy last year. The authorities have pledged to follow their economic plans and continue to invest. China has more capital than can be invested locally, so it might provide the influx of cash so needed in the rest of the world. The central bank reduced interest rates in September, giving industry an opportunity to enjoy larger profit margins.

Another sign of the economic slowdown is the build-up of iron ore and coal stockpiles at Chinese ports. Iron ore stockpiles are estimated to be about 70 million tonnes, and coal inventories are near 9 million tonnes. High inventories may push short term prices down, but as China’s growth resumes over the medium term, demand and prices are expected to rise.

One way of looking at the situation is to imagine the Chinese dragon has gone for a nap, not into hibernation. The metaphorical dragon will probably awake in a year or two, refreshed and ready to grow again.


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