COLUMN-China commodity outlook brightens, but beware caveats – by Clyde Russell (Reuters U.S. – November 3, 2015)

Nov 3 (Reuters) – – Lost amid the headlines about China’s decision to end its one-child policy was news that points to a brighter medium-term outlook for commodity demand in the world’s biggest consumer of natural resources.

While all the nitty-gritty details of the ruling Communist Party’s fifth plenary have yet to be published, the world of commodities should note the commitment to double gross domestic product (GDP) and per capita income by 2020 from 2010 levels.

This should go some way towards alleviating fears that China’s economy is in structural decline, as achieving those goals will require ongoing urbanisation to boost earnings to a level where China could be considered a middle income country.

While it’s no secret that Chinese leaders want to see an economy led by more sustainable consumer spending, in order to get there the country needs consumers with higher disposable incomes, and this means city-based jobs, whether these be in services such as finance or in manufacturing.

China’s per capita GDP is currently around $6,000, or less than a sixth of the $50,600 a person in the United States. A more valid comparison would be to a country like Malaysia, which has a per capita GDP of about $10,500.

Achieving per capita GDP similar to Malaysia would allow China to become more consumer-led, while still enjoying a large export-focused manufacturing base.

The key question is how Beijing will go about its aim of getting per capita GDP to something closer to $10,000 in the next five years.

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