Bhp Changes Tack On China
The Age
Wednesday November 26, 2008
BHP Billiton was the last of the big miners to accept that the Chinese economy, and therefore the global commodities market, was in trouble.
Last night it switched its bets from "China can't stumble" to "China won't recover any time soon".By the second quarter of next year it will become clear whether the giant miner was wrong both times.The Chinese economy is indeed in trouble and the bits that are hurting most happen to be the heavy industries that have driven the five-year-long commodities boom: steel, aluminium, machinery and power generation.But most local analysts believe the Chinese Communist Party's sudden and mammoth effort to turn the economy is likely to succeed.The sector of the economy that the state can most easily reach with its 4trillion yuan ($A941 billion) rescue package is heavy industry, because it is dominated by state-owned enterprises.The central government has a balance sheet strong enough to directly fund huge building projects, which will create demand for iron ore, coal, copper and aluminium. It can, and will, leverage its own spending by leaning on state-owned enterprises and especially state-owned banks to open their vaults to the patriotic cause of spending money.More importantly, China's provincial and local government officials do not need any encouragement to spend money.Hotels near China's central planning agency, the National Development and Reform Commission, are said to be full of provincial officials carrying briefcases full of plans for new freeways, dams and shiny government office buildings."If you add up all the plans coming out of provincial governments it could be nearly double what the central government is willing to spend," said William Ness, Global Insight's Beijing analyst. "They're aiming for growth somewhere about 8per cent. They might be able to hit that."Yesterday the World Bank trimmed its China GDP forecast for next year from 9.3 per cent to 7.5 per cent.The new surge of government-sponsored Chinese building will soon begin to prop up resources demand.In the meantime, China has noted that Australian resources companies are incredibly cheap.
© 2008 The Age