【澳大利亚人报】Let's be realistic about China's economy

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Let's be realistic about China's economy
http://www.theaustralian.news.com.au/business/story/0,28124,25347672-5001942,00.html

Tim Blue, editor | April 22, 2009

"LET a hundred flowers blossom" is a slogan Mao Zedong coined 50 years ago as he tried to talk up the Chinese economy and political system. Apart from flushing out a few political enemies, it didn't work; and while we may fervently hope the Chinese can energise the world's economy and send commodity prices up again, no one can really see it happening, at least for a year or so.

True, there are some encouraging signs. Copper is at a six-month high, white sugar is at an eight-month high and oil futures are about $US80 a barrelin 2015, perhaps pointing to growth.

But to see these as green shoots about to blossom is asking a lot, as Westpac senior economist Justin Smirk points out: "Historically back to World War II, real industrial commodity prices have moved in the same direction as global growth relative to trend.

"Growth is negative in 2009, so it's well below trend, and set to remain so in 2010.
"We can't get optimistic about commodities this year."

In 2010, most expect base metals, oil and farm commodities to find a base with a possible modest tick up by year's end. Bulk commodities, however, such as iron ore and coal, could fall 50per cent from peak to trough.

Oil is interesting. The forward contract on West Texas Intermediate for 2015 delivery is on a five-month high at $US80 a barrel, which could mean tight supply more than strong demand from industry. Higher prices could bring more supply and pull prices back, but it's a hard call.

When Mao's critics emerged after his "hundred blossoms" speech thinking it was safe to do so, they were promptly executed. Investors looking at commodities need to be wary of something almost as unpleasant if the early promising signs turn out to be a furphy.

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