Seeking Alpha

Commodity bulls who base their bets on a perpetually fast-growing, commodity-guzzling China may...

Commodity bulls who base their bets on a perpetually fast-growing, commodity-guzzling China may want to reconsider. China's years of double-digit growth are behind it, and what growth there is will be less commodity intensive as the country relies more on consumption than investment.
Comments (6)
  • Venerability
    , contributor
    Comments (3043) | Send Message
    How are "consumption" and "investment" at odds with one another, in a country where the bourgeoisie is increasing so rapidly?


    They will need highways, rails, subways, affordable housing, appliances, electric grids, telecommunications grids, and everything else it takes to supply so many new members of the middle class.


    And re "investment" in its Market sense: As China finally opens its markets more rapidly - modernizes them to catch up with the rest of the world - the growing middle class and the institutions which serve them will finally start to be reflected in the Shanghai and HK indices, IMO.


    Of course, PermaBears will not like any of this one little bit!
    29 Dec 2010, 03:35 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3532) | Send Message
    Don't disagree with you but it's analogous to any fast growth situation. After years of double digit growth, your growth is coming from a much larger base and the same amount of growth will not be as large percentage wise. The investments already made will generate (they hope) domestic production for domestic consumption, particularly in agriculture, lowering their need for commodity imports. And, who knows, they may figure out how to run cars with windmills and not need so much oil. Anyway, if your investments had been producing 20% returns and it falls to 10%, you'll feel some disappointment.
    29 Dec 2010, 05:51 PM Reply Like
  • 1980XLS
    , contributor
    Comments (3333) | Send Message
    Consumption of what, if not commodities?
    29 Dec 2010, 04:18 PM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (558) | Send Message
    Good points all. I think a distinction should be made between industrial commodities and, say, ag commodities. I'd be surprised if China continues to go through industrial commodities at the rate of the last few years.


    If you liked that article, you're gonna love this one!

    29 Dec 2010, 06:02 PM Reply Like
  • kmi
    , contributor
    Comments (4528) | Send Message
    I'd also make the suggestion that part of Chinese commodity consumption was a result of outsourced US and otherwise manufacturing to China - if and when this slows, and if and when the "developed" world slows consumption growth - a real possibility given 10% US unemployment and the well publicized issues facing Europe - demand for goods and the commodities that make them may decrease. Domestic Chinese consumption will be unlikely to make up the difference, per capita GDP just isn't there.


    Although I am generally bearish on China - I no longer hold any investment of significant value in the country - I am bullish on Latin American, Indian, and other growth so I don't think commodities themselves are going to be poor investments.
    29 Dec 2010, 07:16 PM Reply Like
  • Venerability
    , contributor
    Comments (3043) | Send Message
    I disagree completely.


    China's domestic market will dwarf ours - or Europe's - very, very soon.


    And it is front-ended, in terms of major infrastructure projects which must be completed before a true nationwide consumer economy can be in place.
    29 Dec 2010, 08:52 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs