Rising Commodity Prices in China Stoke Fears of Inflation

China commodity prices for such materials as iron ore, steel rebar, coal and copper soared to record highs in May forcing the government to intervene and curb cost increases for consumers.

As the world’s largest manufacturer and construction market, China has been the main driver behind global metal markets for more than a decade.
From January to mid-May, prices for steel rebar, hot-rolled steel coil and copper rose more than 30% as construction and manufacturing expanded in the world’s largest consumer of metal.

Other vital industrial inputs including iron ore, thermal coal, sulphuric acid and glass also roser to record highs as consumption outpaced supply.
China’s economic recovery accelerated sharply in the first quarter of 2021 after the coronavirus lull in 2020

The huge government stimulus measures launched at the height of the COVID-19 lock-down last year spurred construction activity, while the world’s largest manufacturing base capitalised on booming demand for appliances, exercise equipment and machinery in locked-down countries around the world from mid-2020.

With rising raw material prices stoking fears of inflation, the government is urging coal producers to boost output while investigate behaviour that may be bidding up prices.

Regulators in Shanghai and the steel hub of Tangshan warned mills this month against price gouging, collusion and irregularities, and said they would close businesses of those disrupting market order.

China’s commodity price rises have been further exacerbated by global shipping rates. The Baltic Dry Index (BDI) – a bell weather for dry freight rates – surged to a 19-month high underpinned by excess demand and COVID affected supply.

How SOE Re-structuring put the CCP in charge of the economy

Since the turn of the 21st Century, China’s State Owned Enterprises (SOEs) have undergone a dramatic transformation that is widely misunderstood. Since China joined the World Trade Organization (WTO), its trade surplus has ballooned and SOE share of total exports as dropped relative to private enterprise to become relatively small. To many, this shift is correlated with moves in the late 1990s to ‘reign in’ SOEs and restructure the economy along market lines. However, the real picture is more complicated and far more interesting than this common-sense conclusion. In fact, almost all of the 57 Chinese firms on the Fortune Global 500 list are SOEs.

This phenomenon is puzzling to those who would naturally assume that relatively inefficient SOEs should be out-competed by more efficient private enterprises in a market environment. To understand this paradox, it is important to understand the nature of the shift that occurred at the end of the 1990s.

At the time, Western government’s around the world assumed that Zhu Rongji’s efforts to reform the SOE sector was akin to Gorbachev’s Perestroika program. When in reality the goal was to move toward a much more sophisticated model.

While thousands of workers were let go and vast sprawling heavy industry plants cut loose, something else was also happening. SOE enterprises were quietly repositioning themselves away from highly competitive, export-oriented, downstream industries and consolidating their grasp over lower competition, highly monopolistic up-stream industries – for example, telecommunications, information transfer, storage, banking, energy, transport and post.

At the same time, this freed privately owned, competitive enterprises to concentrate on lower value, more volatile, export-orient industries. This restructuring also drastically increased demand for the intermediate goods, services and factors SOEs provide allowing them to charge monopoly prices consolidating the party’s control over the economy at large.

With SOE enterprises ostensibly under government control, instead of freeing the economy from SOEs, this upstream/down-stream restructuring created a hyper-profitable SOE sector capable of subordinating the private economy into lower value markets, consolidating State control over the economy at large.

ADB Unveils Economic indicators for People’s Republic of China

The People’s Republic of China’s GDP expected to grow by 1.8% in 2020 and 7.7% in 2021 with inflation rates forecast at 3.0% in 2020 and 1.8% in 2021.

Below are the numbers in detail:

Comparative economic forecasts

The latest available economic data for the PRC compared to other regions in East Asia.

Developing Asia to Grow Just 0.1% in 2020 — ADB

Viet Nam is forecast to grow 4.1% in 2020.

Developing Asia will barely grow in 2020 as containment measures to address the coronavirus disease (COVID-19) hamper economic activity and weaken external demand, according to a new set of forecasts from the Asian Development Bank (ADB).

According to the report , excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, developing Asia is forecast to grow 0.4% this year and 6.6% in 2021.

“Economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB Chief Economist Yasuyuki Sawada. “While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery. Governments should undertake policy measures to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur.”

Risks to the outlook remain on the downside. The COVID-19 pandemic may see multiple waves of outbreaks in the coming period and sovereign debt and financial crises cannot be ruled out, the report goes on. There is also the risk of renewed escalation in trade tensions between the United States and the People’s Republic of China (PRC).

East Asia is forecast to grow 1.3% in 2020—the only subregion to experience growth this year—while growth in 2021 will recover to 6.8%. Growth in the PRC is forecast at 1.8% this year and 7.4% in 2021, compared to the April estimates of 2.3% and 7.3%, respectively.

Hit hard by COVID-19, South Asia is forecast to contract by 3.0% in 2020, compared to 4.1% growth predicted in April. Growth prospects for 2021 have been revised down to 4.9% from 6.0%. India’s economy is forecast to contract by 4.0% in fiscal year (FY) 2020, ending on 31 March 2021, before growing 5.0% in FY2021.

Economic activity in Southeast Asia is expected to contract by 2.7% this year before growing by 5.2% in 2021. Contractions are forecast in key economies as containment measures affect domestic consumption and investment, including Indonesia (-1.0%), the Philippines (-3.8%), and Thailand (-6.5%). Viet Nam is forecast to grow 4.1% in 2020. While that is 0.7 percentage points lower than ADB’s April estimates, it is the fastest growth expected in Southeast Asia.

Central Asia’s economic activity is expected to contract by 0.5% compared to the 2.8% growth forecast in April due to trade disruptions and low oil prices. Growth is forecast to recover to 4.2% in 2021.

Restricted trade flows and declining tourism numbers have dampened economic outlook for the Pacific subregion. The subregional economy is forecast to contract by 4.3% in 2020 before rising to 1.6% growth in 2021.

Source: ADB

 

World Bank Reports True Impact of Covid-19 Globally

As countries around the world contend with the health emergency of the COVID-19 pandemic, the economic effects of mitigation measures have immediately impacted the world’s commodity markets and are likely to continue to affect them in the longer term. 

The global economic shock of the pandemic has driven most commodity prices down and is expected to result in substantially lower prices over 2020, the April Commodity Markets Outlook reports. The following figures are courtesy of the World Bank.

The COVID-19 pandemic is expected to plunge most countries into recession in 2020, with per capita income contracting in the largest fraction of countries globally since 1870. Advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging markets and developing economies, who are forecast to contract by 2.5 percent as they cope with their own domestic outbreaks of the virus. 

Taking care of the land and preserving biodiversity – through healthy soil, reliable water access and pollinators – is vital for providing livelihoods for rural populations, particularly during times of economic shock like that caused by the current COVID-19 pandemic.

Healthy ecosystems have been shown to provide a lifeline to the poorest. The Poverty Environment Network project that collects income data of forest adjacent communities from 24 countries, estimates that environmental income (most of it from the forest) represents 28 percent of total income of these households