China’s commodity demand has barely begun its fall – MacroBusiness

These four charts, posted from Investing in Chinese Stocks by David Llewellyn-Smith, illustrate China’s failure to rebalance their economy and the challenge that economies reliant on Chinese real estate and infrastructure investment, like Australia, face.

….China now accounts for fully a third of global industrial production (up from only 5% as recently as the 1990s)–see Exhibit 5.

When you are that big, it becomes increasingly difficult to grow exports and production at a pace materially faster than growth in final global demand, which has averaged about 3% for the past few decades.In addition, since the Great Recession, the relationship between global trade and output (GDP or IP) seems to have changed, with trade no longer growing faster than the overall global economy (Exhibit 6).

For those economies where growth models have tended to be focused on external support like China, this change has introduced substantial new challenges as they try to overhaul their growth models.These structural factors, along with the fact that external demand has remained mediocre since the crisis, has meant that China is attempting to “rebalance” its economy against a backdrop of dramatically weaker export growth, as evidenced in Exhibit 7.

Finally, after a period of “rebalancing” away from investment toward consumption in the mid-2000s, the Great Recession was a tremendous setback to the ultimate objective of more balanced growth. Indeed, the main policy mechanism for fighting the slowdown in 2008 and 2009 was a massive increase in investment, which we now know occurred at just the time that the export-driven growth model was breaking down. Unfortunately, despite the substantial growth slowdown of recent years, there is little evidence that investment as a share of GDP has fallen substantially from the post-stimulus highs. Indeed, at least through to 2014–the latest comparable data available–all that has happened is that the investment share has stopped going up (Exhibit 8).

Source: China’s commodity demand has barely begun its fall – MacroBusiness