Tracking the dynamics of China’s economy and its commodity requirements has grown increasingly complex in recent years, according to analyst Maguire. Until 2020, traders and economists largely relied on a limited set of data points to assess China’s economic health and its demand for raw materials.
However, the past five years have seen a significant transition in the composition of China’s economy. It has shifted from a heavy reliance on construction and industrial sectors to a focus on goods manufacturing and services, which consume far fewer materials and energy.
Historically, commodity traders could simply look at China’s imports of crude oil and iron ore to gauge economic activity. For much of this century, these imports showed a steady increase, serving as indicators for transportation, industry, and construction sectors.
Yet, two notable trends have emerged that make these traditional indicators less relevant. The advent of electric vehicles has drastically reduced fuel demand, with electric car sales growing from just 1% in 2015 to an anticipated 40% by 2024.
Concurrently, a debt crisis in China’s property sector has dampened construction activity, which significantly decreases the demand for iron ore, a vital component in steel production. While construction sites may have become less active, manufacturing in China is thriving.
The country has seen tremendous growth in the production of electric vehicles, solar panels, and rechargeable batteries, alongside increases in output of essential manufacturing materials like copper and aluminum. This manufacturing boom is complemented by a rise in energy production, crucial for sustaining this momentum.
However, China’s exports of manufactured goods face challenges ahead due to the new tariffs imposed by the U.S. Additionally, the ongoing trade deficit between the U.S. and China complicates the landscape. As China adapts to these tariffs and adjusts its import-export dynamics, the need for more detailed and relevant data points will become paramount for traders and economists in understanding the future of China’s economic impact.