We prefer a long-term view of our subject matter and a recurring theme for us is the continuing urbanization and industrialization of China. This week was an interesting display of how market watchers tend to focus on the moment – the short-term trade. Case in point, on Thursday we had two important pieces of economic news from China (1) the PMI numbers which were barely over 50.0 (depending on the source) and (2) the plan to raise $6.4 Trillion for the next phase of Chinese Urbanization. While the PMI number had all a’twitter the more substantial news (in our humble opinion) is the long-term plan for urbanization and industrialization expenditures and how China intends to pay for them.

On February 18th we featured a must read research item from Bernstein Research: China’s industrial behemoth with bones like iron bars – fuelled by inexpensive labour for how long? where Bernstein produces a detailed view of what level of urbanization will be required for China to eliminate the pending disaster of a rapidly ageing population being supported by a predominately agrarian work force. In the words of Bernstein, China needs to “grow rich before it grows old”.

For the full Bernstein Report: https://nexvucapital.files.wordpress.com/2013/02/bernstein-10yearcoppercycle-chinademographics.pdf

China’s continuing drive toward urbanization and industrialization has had some interesting effects on global commodity markets. These are discussed in an excellent piece by the Australian Treasury entitled China’s emergence in global commodity markets. The following is the pre-amble to this Report:

China today dominates many of the world’s commodity markets. Its demand for commodities

rose dramatically in the years leading up to the Global Financial Crisis, held up well during the

crisis as prices fell, and continued to rise post-crisis. The pace of economic development, and

processes of industrialisation, urbanisation, and rising per capita incomes, has seen China

become a major commodity consumer on global markets, particularly in metals and energy.

This paper analyses the history of China’s demand for commodities — across energy, metals

and agriculture — and the potential path of future demand. It compares China’s experience in

recent decades with that of other recent industrialising economies, and considers the scale and

pace of China’s commodity demand and its own domestic production on global commodity

markets. The long term outlook for Chinese commodity demand remains strong as the

underlying drivers of Chinese commodity demand still have some time to run. China’s per capita

consumption of key commodities, like per capita income, is still well below that of major

advanced economies. Moreover, given the scale of China’s appetite for commodities, small

shifts in its domestic demand-supply balance could have major implications for global

commodity markets.

For the full Australian Treasury Report: http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/Publications/2012/Economic%20Roundup%20Issue%201/Downloads/01%20China%20Commodity%20demand.ashx