Resource World Magazine

24 www.resourceworld.com F E B R U A R Y / M A R C H 2 0 1 4 Recently, the world seems to be adopting a growing perception that China's economic growth is slowing down and is headed for a hard landing, with the underlying assumption that the coun- try's current economic cycle is ending, and that this will, in turn, end the Super Cycle. Setting aside the debate about defining the Super Cycle and whether or not it is ending, and given the coun- try's pivotal role in the fundamentals of the global economy, the resource sector needs to understand if China's economic growth is indeed slowing down in order to position itself for success in the coming years. THE QUANTUM BASICS For more than a century, the world's dominant advanced econo- mies have been evaluated very effectively on the basis of growth rates rather than the absolute quantum of growth. In fact, growth rates have served as a proxy for the direction of economic devel- opment worldwide. Figure 1 shows that since the turn of the century, growth rates (or contraction rates) have tracked the absolute quantum of growth or contraction of the US economy without fail throughout the cycles. As a result, the world has become accustomed to looking at economies through the lens of growth rates to evaluate the direction and health of any economy. Given this decades-old confirmation of the validity of these status-quo analytics, the habit is hard to shake, even when we are confronted with quite different mathematical dynam - ics. While China's economy cannot be dissociated from global historical trends, it is now so large that we can derive quite differ- ent impressions, and arrive at potentially different conclusions, from examining its absolute quantum of growth versus its rate of growth. Figure 2 shows that China's real GDP was growing at its peak speed of over 14% a year in 2007, adding US $385 billion to its economy that year, while in 2012, when it was 'slowing down' to grow at 7.7% (half of the 2007 rate), its economy actually grew by US $563 billion, about 50% more than 2007 in absolute value. Furthermore, in that same year, 2012, China's real GDP was about 30% higher than that of the US (which grew by US $435 billion). To say that China's growth was slowing down in 2012 at 7.7% p.a. versus 14.2% p.a. in 2007 is not wrong, but it is certainly misleading at this juncture. China was actually growing much faster in quantum at US $563 billion p.a. in 2012 than at US $385 billion in 2007. At the end of the day, it is the actual size of the economy (and not its growth rate) that drives the demand for resources in the global market. Building 50% more infrastructure requires 50% more steel, not 7.7%. Figure 3 puts China's annual absolute growth in context by comparing China's growth with that of the US, the absolute larg - est economy, in this century. In the year 2000, real US GDP grew by US $396 billion (China grew by US $91 billion that year). In 2007, China overtook the US for the first time, growing US $385 billion (while the US grew by US $250 billion). In 2012, China widened its lead, growing by US $563 billion (versus US $435 bil - lion for the US). The IMF's five-year forecast predicts that China will maintain its lead to become the largest annual contributor to real global GDP growth approaching US $1 trillion a year towards the end of the decade. Out of some 200 countries surveyed by the United Nations, the World Bank and the IMF, just 15 have GDP of more than US $1 trillion a year. In addition to being the largest and fastest-growing economy, China's absolute growth in the short to medium term is indisputably very significant. China and the resource sector How the resource sector will benefit from China's absolute economic momentum By Sandy Chim (450) (250) (50) 150 350 550 750 950 1,150 US China Figure 3: Real GDP Growth in Billion US$ - China v.s. US Historical and Forecast (2000 – 2018) Source: IMF, Century Iron Mines "China is the second-largest economy in the world, a position Japan achieved and maintained for several years."

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