China Coal Report | Coal Publications | China
But when it became clear most of the new announcements had in fact already been previously released – the political equivalent of re-gifting a policy if you like – that hope quickly started to fade for the coal industry.
It didn’t quite dissipate completely, but certainly faded more when it was also revealed the infrastructure build will be dragged out over a five to ten year timeframe.
In short, the National Development and Reform Commission (NDRC) last week said it had approved 25 urban rail transit projects in 19 cities, at an estimated investment of between RMB800B and RMB1T (US$158B). It also announced the approval of 20 investment projects, 13 of which were for road building.
But within days Chinese government economist Fan Jianping admitted to the China Securities Journal that many of the projects mentioned by the NDRC last week featured in the government’s 12th Five Year Plan.
The short-term elation experienced by China’s steel and coking coal industries must have felt like a cruel blow as the two struggle to remain sustainable amid falling global commodity prices.
With a passing glance the massive infrastructure spend China announced last week sounds like a good thing for future coal demand. If you are going to build more railways and you need steel so things are looking up. Right?
But things are never that simple and especially in China which has shown itself quite adept at wrapping up old announcements and re-gifting them as something altogether new.
Last week the NDRC announced it had approved 25 urban rail transit projects in 19 cities, at an estimated investment of between RMB800B and RMB1T (US$158B). The NDRC followed this up with the announcement it had approved 20 investment projects, 13 of which were for road building. The Chinese share market reacted predictably, rallying after the announcements were made last week.
“So are we feeling stimulated yet?” an industry analyst asked about the stimulus package. “Probably not. Some are referring to the so called stimulus as the unicorn stimulus, the stuff of legend. This has been in the works for some time. The NDRC announcing it now is simply political expediency.”
Government economist Fan Jianping admitted to the China Securities Journal that many of the projects mentioned by the NDRC last week featured in the government’s 12th Five Year Plan.
“Even with the approvals, it remains uncertain whether this will reflect any real surge in demand for coal in China,” said one analyst.
Given the investments will be eked out over the next five to ten years, it also seems fair to speculate that this apparent instance of the NDRC loosening the purse strings could be the stopgap needed to paint a prosperous background for the Communist Party Congress, which is to be held in mid to late October.
Chinese political risk is currently at heightened levels given the upcoming leadership transition.
“Until there is a smooth transition of power, it’s very hard to have conviction on the direction of the Chinese economy,” an economist China Coal Report spoke to said. “Ultimately it’s the guys in the Politburo Standing Committee who set China’s direction. And I frankly don’t know who will ascend to this crucial body.”
With uncertainty over the leadership and its implications for the Chinese economy and its people, it is near impossible to speculate what this may mean for the country’s demand for coal.
What is clear is that the outlook for the economy is still looking sombre compared to its recent glories. Major investment banks including Goldman Sachs, UBS and Macquarie Bank have cut their GDP forecasts for China to around 7.5%-7.7% for 2012 and 7.5%-8.0% for 2013.
And August’s economic indicators continue to deteriorate, as shown by the PMI reading of 49.2, and ongoing downgrades of China’s GDP growth forecast for 2013
Power generation and demand - recognized as leading indicators of the economy - were again disappointing last month. August power generation increased by 2.7% y-o-y according to the National Bureau of Statistics, which was flat from last month but slightly higher than the 2.1% y-o-y growth in July.
And while the figures released for infrastructure spend by the Central Government are impressive, they still pale in comparison to the RMB4T ($947B) that China spent in 2009 which was enough to turn the country from a net exporter of coal to a net importer and changed seaborne coal market dynamics in the most fundamental ways.
More information can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market. With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.
For more information on this or other publications produced by Energy Publishing please contact marketing@energypublishing.biz, call +61 7 3020 4000 or visit http://www.coalportal.com/
Photo:
http://www.prlog.org/
