China's Construction Sector Starting To Slow
The Age
Thursday October 2, 2008
THE fate of resource-rich countries like Australia may depend on China and the rest of the emerging world, which last year accounted for half of world growth when measured in market exchange rates (and a much higher proportion when price differences between countries are taken into account).
So far, emerging economies are slowing from breakneck speed to merely fast as their major export markets in the US and Europe evaporate.Savings-rich countries like China, after all, do not need finance from Wall Street.Worryingly for Australia, the Chinese construction sector, which drives demand for commodities like iron ore, is also entering a sharp downturn, after nearly a year of tight credit rationing by the central bank to fight inflation.Data from the People's Bank of China shows loans to Chinese construction companies fell 30% in the first half of this year compared with a year earlier. Nor have construction companies been able to attract funds from the Shanghai sharemarket, which had fallen more than 70% since November before regulatory intervention last week.Caijing Magazine reports that real estate sales volumes have plunged 50% this year in key cities including Shanghai, Shenzhen, Wuhan and Xiamen.The construction slump is feeding directly into prices of steel and, therefore, iron ore."The economy is heading for a downward slide, so the steel industry is certainly heading for a downward slide," Baosteel chairman Xu Lejiang said this week.China's construction-driven demand for commodities will rebound, but not fast enough to prevent some reversal of the huge export price rises Australia has recently enjoyed."The best way to put it is 'emerging market saves itself"," says Jonathan Anderson, chief emerging markets economist at investment bank UBS. "And perhaps a bit of the rest of the world."
© 2008 The Age