Strong gains in commodities give China’s economy a boost

THE Chinese dragon is still feasting on commodities.

When the Chinese economy began to slow last year it sent prices for Australian mineral commodities such as iron ore into a tumble and the mining boom was pronounced dead by many.

The good news is the Chinese dragon is firing up and recent economic news out of China confirmed that their economy continues to grow.

Chinese spending on new roads, rail and power plants grew by 20.7% in 2012, retail sales rose 14.5% in the 12 months to October and industrial production climbed 9.6%.

China appears to have avoided the hard economic landing many had feared.

That's great news for our economy as China is Australia's biggest customer of mineral resources and our sharemarket is heavily exposed to mining stocks.

In his first speech, incoming Chinese president Xi Jinping vowed to meet his people's aspirations for material wealth, personal happiness and national power.

To understand the significance of the potential economic power of China's one billion consumers, look no further than their love affair with the car.

In 2009, China assumed the crown as the biggest vehicle market on the planet.

New car sales reached 18 million last year and experts predict this could double by 2018.

The challenge to meet demand for coal, gas and iron ore has sparked big plans for new mines, not just in Australia but also in Mongolia, West Africa and even China itself.

While this poses a risk of oversupply and depressed commodity prices in years to come, it is theorised that as other under-developed nations modernise their economies, demand will remain constant for generations.

So, while the short term outlook for commodity prices, and therefore Australia's economic growth, faces some risks from a sluggish global economy, the longer-term view for resources and our wider economy still appears bright, in what is being called the Asian Century.

Jason Mcfadden is is a Certified Financial Planner with JPM Financial Planning. This editorial is general advice only.

Topics:  china commodities opinion

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