Economic indicators from the People’s Republic of China show that the government is steadily working towards reining in the problematic overcapacity its domestic smelters has built up over the past few years.
The latest economic plans from Beijing indicate a shift from continuing to add to capacity in the non-ferrous field to concentrating on minor metals used in renewable fuels and electric vehicles. The government plans to grow output of niche, high value metals like cobalt, lithium and magnesium, as it predicts that demand from makers of electric vehicles, lightweight planes and automobiles, clean energy, and the electronics sector. Growth in aluminium will continue, however the government plans to strictly control all further growth in capacity. By 2020, China’s target aluminium output is predicted to be equal to 40 million tonnes.
A major catalyst for runaway capacity growth over the past several months and years has been the easy credit available to Chinese aluminium smelters.
“Credit growth continues to outstrip nominal GDP growth, building on an already enormous base of outstanding debt,” said Cornell University’s Eswar Prasad. “The cost of hitting short-term growth targets is becoming a rising burden for the financial system, with stresses periodically erupting in different parts of the system. The housing market is the latest pressure point.”
“We must be aware that economic development is still in a critical period of transformation, with old growth drivers to be replaced by new ones,” explained China’s National Bureau of Statistics spokesman Sheng Laiyun on Thursday. “With unstable and uncertain domestic and external factors, the foundation for continued economic growth is not solid enough.”
Although some critical growth engines rose over the course of the calendar year, industrial production hasn’t fared quite as well.
“Retail sales and investment are both in line with expectations,” said Zhu Haibin, chief China economist at JPMorgan in Hong Kong. “The only disappointment came from industrial production.”
Zhu went on to say that industrial production growth was 6.1 percent last month, which he characterized as a “pretty soft number.” He expected car sales to slow as well, which is likely to necessitate less new aluminium capacity to meet a lessened demand.
Despite the fact that a growth rate of 6.5 percent is the slowest it has been in over two decades, many signs point to an acceptance of a “new normal” of slower, balanced growth in both economic output and raw materials capacity.
“The Chinese economy has experienced an extended period of relative stability, albeit at 25-year lows,” said Standard Bank’s chief China economist Jeremy Stevens. “Essentially they’ve got their 6.5 per cent growth for the year.”