China’s construction binge good for the global economy

China’s construction binge good for the global economy

The COVID-19 pandemic forced China and other countries across the globe to bring industrial activities to a halt earlier in the year. However, the Asian giant looks ready to revive its engine, with global prices of metals reflecting a renewed growth appetite.

China consumes about 50% of the world’s industrial metals and the country’s government recently unleashed a robust fiscal stimulus program to build bridges, roads, utilities, broadband and railroads across the nation. This has led to a surge in the prices of iron ore, nickel, copper, zinc and other metals used for building infrastructure.

China, as usual, went the investment route and is massively investing in metals-intensive infrastructure,” said Caroline Bain, a commodities market analyst with Capital Economics in London. “So there’s been a very strong pick up in China’s demand for metals,” she continued.

In a similar vein, China’s state railway operator announced plans in August to double the size of its high-speed rail network over the next 15 years. According to Standard & Poor’s analystsChina’s state-owned enterprises, including the likes of China National Offshore Oil Corporation and China Mobile increased their investment by 14% in July compared with the prior year.

The COVID-19-induced cut in demand from China has affected other countries of the world. A recent report revealed that Australia’s exports to China, which is mostly iron ore and coal, reduced by about 20%, with the country falling into its first recession in nearly 3 decades. The case was not particularly different for Brazil, Chile, and Peru.

The response of the Chinese government has been phenomenal, helping the country to post one of the fastest recoveries of any of the world’s largest economies in recent months.

According to economists at the Organization for Economic Cooperation and Development (OECD), China’s GDP is expected to grow by 1.8% in 2020. This makes it the only member of the Group of 20 nations not to suffer a recession in the year.

The recovery in GDP is much faster and stronger than elsewhere,” said Bain of Capital Economics.

The numbers coming out of China is good news for the global economy.

People’s perception of the economy is how weakened it is, yet all the industrial metals are telling you a very different story,” said Chris Verrone, an analyst and partner at Strategas Research in New York. “We think copper is the market trying to tell us that the economy is stronger than we expect.”

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