China: Economy Growth Equals Strong Metals Demand


We received this note from our colleagues at U.S. Global Investors:

“The U.S. stock market appears to be rattled by today’s reports that China’s economy may be growing too fast and that the government will respond with an interest rate hike that will hurt commodities demand.

“Not everyone has such a dire outlook.

“Here’s some perspective from CLSA Asia-Pacific Markets:

“‘You can continue to ignore the official GDP growth number for 1Q07 – 11.1% – as Beijing is stuck with working from the political fiction (too high) they’ve been issuing for the past few years. The economy IS picking up, but after three years of slowing. By our calculations, growth is accelerating a bit from a rate of 8-9% last year, rather than double-digit figures. Today’s numbers do not signal overheating, or the coming of government tightening measures. We will see more of the quality control measures (or token tightening) that were implemented over the last year, with one more small interest rate hike and a few more increases in bank reserve ratios to come. But these are designed to raise the cost of capital to a more rational level.’
“And here’s a longer-term outlook from the Reserve Bank of Australia, which issued its monthly bulletin today. Australia is the world’s leading exporter of iron ore and coal, two commodities much in demand in China and other fast-growing nations:

“‘While increased supply will exert some dampening influence on prices, the rapid growth in world demand for metals and other resources appears to be showing little sign of abating. … There are good reasons to believe that strong demand, from emerging economies in particular, may continue for several decades.'”

The Daily Reckoning Australia

The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.

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