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China’s leaders are positioning the country for a new era of lower, single-digit growth led more by consumer spending. That reshuffles the lineup of suppliers to the world’s second-largest economy and appears set to push Canadian commodities producers to the margins.
“The commodities super cycle – I don’t know if it’s over, but it’s not looking as good as it used to and it’s going to hurt a major part of our economy,” said Yuen Pau Woo, president and CEO of the Vancouver-based Asia Pacific Foundation of Canada. “We did less badly out of the global recession of 2008-09 on the back of Chinese demand for commodities. That honeymoon is over.”
As demand for resources moderates, Mr. Woo warns that Canada needs to strike a trade agreement with China and better promote its banks, automotive sector and other products that don’t depend on construction.
China’s leaders have been warning its companies for much of the past decade about their over-reliance on infrastructure investment and the need to prepare for a shift to consumer-led growth.
Last week, China’s government acted by announcing an end to some government-determined interest rates and warning that further rate reforms “will be more profound.” Analysts say this direction points toward the end of easy credit for China’s manufacturing and construction sectors.
China’s economic growth held at 10 per cent or above for seven of the past 10 years, according to World Bank data. Macquarie Group Ltd. said in a report released Wednesday that its researchers have lowered their 2013 and 2014 China growth forecasts to 7.3 per cent and 6.9 per cent, respectively, partly because “the peak of investment spending has likely passed.”
Much of that investment went into roads, bridges, factories and ports, all of which helped propel China’s economic ranking past the U.K., Germany, and Japan within the past decade. It also required commodities like coking coal, a key steel-making ingredient, which benefited Canadian commodity producers such as Teck Resources Ltd. The Vancouver-based company ships about 15 to 20 per cent of the 25 million tonnes of coking coal it produces annually to China, according to analysts.
China is undergoing a transformation, Jim McNerney, chief executive of airplane giant Boeing Co. said during a conference call Wednesday.
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