Chinese commodity demand looks like being very strong in 2023. The key factor, a reminder that in China more than most other countries, the economy is a political economy, is the change in overall policy stance since the 20th People’s Congress last October. Zero-COVID has been dropped, support for the property industry has been stepped up, travel has been opened up, tutoring is again permitted, gaming companies can register new games, Didi can sign new users again. The list goes on.
To be fair, the policy stance, especially for the old economy sectors of property and infrastructure, was supportive all through 2022. But it didn’t work – property stimulus was not strong enough to overcome the COVID lockdowns and related consumer caution. And because property was so weak, local government land sales were also weak, which compromised funding for the infrastructure push.
With COVID now rapidly disappearing into the rearview mirror, and with policy stimulus becoming ever more generous, conditions are now ripe for that vicious circle pivoting to a virtuous circle. Home sales in 2022 were down 28%, and property developers bought 55% less land than in 2021, which points to quite a bit of pent-up demand for 2023. Consumption of the major commodities – steel, copper, aluminium, were typically down by 6-10% in 2022, again suggesting there is room for a strong bounce this year.
After three years of COVID restrictions, after a successful political transition for President Xi, and after the stress of a torrid COVID wave, the message to China’s population is that 2023 will be a year to enjoy. In the opinion of this observer, the message for commodity producers is pretty much the same.