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China gloom to end our mining boom?

Date

Peter Cai

Slow down: Many Chinese economists advise against any further stimulus.

Slow down: Many Chinese economists advise against any further stimulus. Photo: AFP

SENIOR Chinese government policy advisers have said Beijing is unlikely to have the appetite for the new round of massive spending to boost its slowing economy, casting a shadow over Australian miners' hopes of a near-term rebound in the giant economy.

Doubts are also growing within China as to whether banks are willing to finance a planned $US156 billion ($150 billion) infrastructure spending spree ranging from railways to roads as many local governments in China are still nursing a three-year-old debt hangover.

The price of iron ore - Australia's most important export earner - dropped below $90 a tonne last Friday from $127 a tonne at the start of July. The collapse in the price has triggered the fear that the mining boom, which has underpinned Australia's prosperity, is over.

Australian miners including BHP Billiton and Fortescue suspended their planned production expansions in recent weeks in light of the sluggish growth in their most important market, hoping for a Chinese stimulus to shore up a falling commodities price.

In recent days, China's powerful economic planning agency - the National Development and Reform Commission - approved big-ticket infrastructure spending projects, taking in ports and hundreds of miles of underground railways.

But the talk of another round of stimulus has been met with scepticism and criticism in China. A leading financial publication in China has called the local governments' stimulus plans ''delusional''.

He Fan, a senior researcher at the Chinese Academy of Social Sciences - an influential government think tank - and a special adviser to China's Minister of Finance, said it was unlikely the government would unleash another round of a large stimulus package and any future spending would be carefully

targeted. He said the government was concerned about the after-effects of the 4 trillion yuan ($600 billion) stimulus package in 2009, which resulted in widespread waste and corruption.

The previous round of stimulus spending was largely financed by banks and many of them were concerned about the ability of the local government to repay their debts. Dr He said ''banks would not make the same mistake again''.

A senior policy adviser to the State Council - the Chinese cabinet - who declined to be named, told BusinessDay the government would not ''drink poisonous water to quench thirst'', alluding to the dangerous policy impetus to apply economic Band-Aid solutions.

The government was pyschologically prepared for the slowdown and revised its gross domestic product growth target down to 7.5 per cent this year, he said.

Deng Yuwen, a senior editor from the Central Party School - the highest training institute for senior party officials and headed by Xi Jinping, who is widely tipped to be the next Chinese president - came out to criticise the planned infrastructure spending.

''Local governments are engaging in irresponsible fiscal spending under the pretext of maintaining stable growth … this will worsen the problem of serious industrial overcapacity and drag down the banks as well,'' Mr Deng said in an essay he wrote for Caijing Magazine, a national business publication. CITIC Securities' - one of China's largest brokerages - managing director Gao Zhanjun, said ''the [Chinese] government will act to counter economic slowdown, but large-scale stimulus is neither necessary nor desirable,'' according to Caixin Media, a Chinese-language business publication.

Still, many believe China's political leaders were preoccupied with leadership change, which could be affecting efforts on growth.

There is a consensus among the Chinese economists that another round of stimulus spending by local governments could lead to even worse economic troubles in the future such as overcapacity, unfinished building projects, local debt crisis, and bad bank loans.

39 comments

  • Could it be that we priced ourselves out of the market. Loads of Iron ore in South America and from what I understand they are predicting the market to grow by 200% over the next three years.

    Commenter
    The Green Eye
    Location
    WA
    Date and time
    September 10, 2012, 10:48AM
    • Thats pretty silly the shipping cost from South america is like $50 more...as the price falls south america is the one thats in trouble.

      Commenter
      Ben
      Location
      Shanghai
      Date and time
      September 10, 2012, 11:25AM
    • @ The Green Eye..
      Do you want growth over our sustainable future... by Exporting dirty coal to 3rd world countries we are ignoring our comittment to fight deadly climate change... forget the boom..Australia can create a new boom of its own by investing in renewable energy and being a leader in that...
      exporting pollution or producing pollution like in our own backyard of hazelwood is only accelerating climate change..

      Commenter
      Green Avenger
      Location
      Marrickville
      Date and time
      September 10, 2012, 11:54AM
    • •Ben
      2012, 9:25AM.....$50 a what ??? Why the new bulk ore carriers then that can only operate out of two ports because of their size. $50.00 more !!! Why would they take any then. Often trade is about more than just money in your terms. !!!!

      Commenter
      The Green Eye
      Location
      WA
      Date and time
      September 10, 2012, 12:04PM
    • @Green Avenger - "Do you want growth over our sustainable future"

      This is a simplistic way of looking at it. The cost benefit relationship needs to stack up. At the moment, we are taking extreme measures which will stunt our prosperity and achieve an environmental benefit which is virtually zero (at best, the CO2 tax will reduce emissions by 0.04%. This is practically nothing). Why are we doing this? Much of the sentiment with respect to climate change is nothing more than hysteria. We are not on the brink of a climate apocalypse, so why take extreme action? I don't think it is moral to make human beings suffer economic hardship for the sake of insignificant environmental benefit. Humans come first, the environment comes second.

      Commenter
      smart bomb
      Date and time
      September 10, 2012, 12:47PM
    • @Green Avenger - "Exporting dirty coal to 3rd world countries we are ignoring our comittment to fight deadly climate change"

      We have had 40 years of failed climate change prophecies or what the Left call "scientific forecasts". Why should people in 3rd world countries suffer because the Left has convinced themselves that they are on the brink of being wiped our by a climate catastrophe that only exists in their fertile imaginations? For instance - April 22, 1990 ABC, The Miracle Planet “I think we’re in trouble. When you realize how little time we have left–we are now given not 10 years to save the rainforests, but in many cases five years. Madagascar will largely be gone in five years unless something happens. And nothing is happening.”

      Did this happen? No. The environmental movement has legacy of hysteric false claims like this. Its not fair to make human beings suffer economic pain in the name of this hysterical nonsense.

      "exporting pollution or producing pollution like in our own backyard of hazelwood is only accelerating climate change.."

      We have been fed this nonsense for decades. July 26, 1999 The Birmingham Post ”Scientists are warning that some of the Himalayan glaciers could vanish within ten years because of global warming. A build-up of greenhouse gases is blamed for the meltdown, which could lead to drought and flooding in the region affecting millions of people.”. Its now 2012 and this didn't happen. Why must we stunt our prosperity for the sake of this hysteria.

      Commenter
      smart bomb
      Date and time
      September 10, 2012, 12:48PM
    • Green Avenger - "Australia can create a new boom of its own by investing in renewable energy and being a leader in that" - Who will pay for the "investment in renewable energy"? The Greens have blackmailed Gillard into committing $10bn of borrowed money for which tax payers will be paying for.years into the future. Look at the all the subsidised wind-mills in Spain - has it done anything to help the economy in Spain? What the chances that most of the money "invested" in "renewable" energy will never be recovered? None of the current projects can survive without massive subsidies from the government. Indonesia and Africa are already replacing Australia as a coal exporter.

      Commenter
      hbloz
      Date and time
      September 10, 2012, 1:04PM
    • @Green Eye - "Often trade is about more than just money in your terms. !!!!"

      Not really. Minerals are a commodity. This makes them highly price sensitive. We need to help our enterprises keep their costs down. This leftist claptrap does the opposite. It makes our commodities more expensive and therefore pushes business enterprise overseas. They take prosperity with them. So we end up killing the golden goose. In the end we all lose out because some spiteful leftist wants to redistribute the fruits of another mans labour.

      Commenter
      smart bomb
      Date and time
      September 10, 2012, 1:11PM
    • hbloz - " Look at the all the subsidised wind-mills in Spain - has it done anything to help the economy in Spain? What the chances that most of the money "invested" in "renewable" energy will never be recovered?"

      Correct. They have gone nuts with environmental extremism. The promise of 'green jobs' has turned out the biggest scam of our time. In Europe they lost 2 traditional jobs for every 1 green job created. Spain has an unemployment rate 21.5%. They would have more jobs if they didn't kill off their industry by running amok with environmental extremism.

      People are starving on the streets of Spain. For what? To achieve a virtually non-existent environmental benefit - 0.03% per annum (Spain produces 1.1% of man made emissions, man made emissions are about 3% of total emissions).

      It is an upside down moral universe that prioritises insignificant environmental benefit over significant human suffering.

      Commenter
      smart bomb
      Date and time
      September 10, 2012, 1:40PM
  • 7.5% growth is not a recession.
    To expect that the double digit growth that has existed over the past 2 decades to continue was the delusion. Whata surprise that all sorts of opportunists jumped onto the mining rollercoaster at its peak. This is the story of all boom bust cycles.
    That some of the air has come out of the mining bubble has got to be good in assisting in controlling hyperinflated capital expenditure costs and in bringing Australia back to some sort of equilibrium as the disequilibrium that has existed is not in the interests of the country as a whole.

    Commenter
    Seriously
    Date and time
    September 10, 2012, 10:50AM

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