The essence of the new trend is that the PRC government is apparently going to arrange a "soft landing" for the country's economy, reducing its growth rates.
There are reasons for this - first of all, a very high level of domestic debt. You can (and probably should) envy the Chinese that their banks are subordinated to the task of ensuring economic growth. But this also has its downside.
In fact, the Chinese economy has been firmly on the "credit needle" for at least 10-15 years. The policy of cheap and affordable money for the real sector, which has boosted Western economies over the past year and has triggered record skyrockets in steel prices, has a long and lasting tradition in China.
China's economy in metal production 2021This strategy has a number of undoubted advantages, but it also has disadvantages. Once enabled, the flow of credit must constantly expand. Otherwise, even with minimal rates, the problem of no return arises. Meanwhile, opportunities for growth are shrinking. The globe, alas, is finite, and the demand for it is also finite.
The first attempt to slow down this ceiling-borne growth in the Chinese economy was made in 2013-2015. Yes, it was then that huge surpluses of steel products appeared in China, which poured into foreign markets, provoking a worldwide wave of anti-dumping processes against Chinese companies.
In the spring of 2016, the Chinese leadership threw out a "white flag" announcing the resumption of credit pumping of the national economy. Chinese exports began to fall, which allowed the global market to recover. Later, China began to develop domestic consumption, and the pipeline of infrastructure projects was launched again. Obviously, considerable hopes were pinned on the Belt and Path, but this card did not play for a number of reasons. The approach to foreign projects by Chinese investors turned out to be too commercial.
How the coronavirus affected steel productionThe promotion of the domestic market peaked in 2020, when, as part of the fight against the consequences of the coronavirus, the construction sector and industry were literally flooded with money. At the end of the year, a sharp increase in orders for Chinese goods from Western countries, where a consumer boom with emission and debt filling began, also made its contribution. Domestic consumption of steel products in China in 2020 increased by almost 10% compared to the previous year, production - by almost 7%. At the same time, China's net steel exports fell by almost 33 million tons.
This rise continued in the first half of this year. And then they took me in Beijing and said: "Stop!" Why was this decision made and at that moment? It can be assumed that dangerous signs of overheating have appeared in the PRC economy. In the first half of 2021, electricity consumption in the country increased by more than 10% compared to the same period last year. Of course, one must take into account the very cold winters and the unusually hot summers, but the industrial upsurge also played a role. Meanwhile, it turned out to be not so easy to adequately increase the generation of electricity. This summer, many provinces in China imposed severe restrictions on energy supplies for the first time in recent years.
The total debt has probably increased to dangerous levels. This year, the volume of special bond issues was sharply reduced, which are used to finance infrastructure projects in the regions. In the first six months of 2021, it amounted to 1.014 trillion. yuan ($ 156.4 billion), which is 2.2 times less than in the same period a year earlier. At the same time, the rules for the use of funds received from the placement of these securities were tightened. Local authorities are required to ensure that this money in no case goes to the real estate market.
Finally, the Chinese industry will slow down in the coming months. The last year's boom in export orders will definitely not be repeated. The coronavirus has brought such chaos to the work of ports and shipping companies that it will definitely have to be cleared up at least until next year. The cost of containerized cargo delivery from China to America and Europe has already broken all records, but is still growing.