MENU

A dire outlook for China’s economy

A recent report undertaken by Westpac’s Huw McKay has found that China’s diminishing rate of growth is likely to extend through to next year, with many analysts expecting that the nation’s official growth target of 7.5% for this year is going to be difficult to achieve.

Although commodity prices have been soaring in recent times, it is expected that this is simply due to the restocking of inventories by Chinese companies. Now, the report says, “there is mounting evidence that the current phase of the commodity price cycle is coming to an end.”

Currently, Australia is still China’s preferred source of imports, and it is estimated that over half of China’s iron ore imports came from Australia in the second quarter of this year. This equates to roughly 198 million tonnes from Australia alone.

According to The Australian however, the nation’s imports from Australia have fallen rapidly since 2010 – which marked the peak of China’s growth. The report showed that export growth had fallen from 48.6% year-on-year expansion in 2010 to just 9.1% in the June quarter this year.

Foolish takeaway

Whilst companies such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have continued to ramp up their annual production rates for iron ore, lower demand from China will result in deflated commodity prices, which will greatly affect company profits. Thus, despite recent strength in these companies’ share prices, it would be wise to look elsewhere for investment ideas.

For instance, are you interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!