China’s new President has a dream and there is much speculation about where it will lead the world’s newest mega-economy in the decade ahead. Consumer affluence, international dominance and restoring China’s cultural and scientific leadership might all be part of that dream. But what ship-owners want to know is whether the President finds himself dreaming about steel and energy.
Beyond Our Wildest Dreams
The last decade demonstrated that China is capable of propelling ship-ping into undreamed of territory. As imports edge past the magic 2 billion tonnes (see graph) it’s hard to believe that only as far back as 2002 China, with imports of only 393mt, was in the little league. At the time Europe imported 2 billion tonnes per annum and Japan 800mt. But since then 16% pa average growth has pushed China ahead of Europe and into the number one slot. This took shipping investors by surprise, and the market experienced one of those rare events, an acute shortage of ships.
Great Wall of Steel
This is now history and the issue today is what happens next. For a decade China’s strategy appears to have been to cover much of the country with steel and concrete. This pushed steel production from 182mt in 2002 to about 760mt in 2013, with an estimated 100 mt of capacity under construction. Unfortunately with China’s 31 provinces and 1.3 billion popula-tion, it is no easier today to predict future steel demand in China than it was in 2003. A “dream” strategy does not seem likely to make infrastructure a major feature of the road ahead, but infrastructure development still has a momentum of its own.
Economic development models generally expect the export mix to evolve from raw materials intensive growth to value-added trade and services in the later stages of de-velopment. But so far China has moved through this development cycle much faster than its predecessors, which has been massively helpful to the shipping market. During the decade 2002-12 Chinese import growth generated an extra demand for roughly 158m dwt of new bulkcarriers. But during the same period the bulker fleet has grown 328m dwt, so there is some spare capacity in hand there. As import growth slips below the 10 year trend (see graph), bulk shipping really needs China to linger a little longer in the material intensive phase.
To Sleep, Perchance to Dream
So there you have it. With two bil-lion tonnes of imports, China now tops the trade league. But the jury’s out on where the next billion comes from. Will the President’s “dream ticket” drive another great leap for-ward into a world built from more delicate commodities than steel and cement? Or will the more easily targeted, but less controllable, infrastructure juggernaut keep surging on? It’s a tough call. As Confucius said, “real knowledge is to know the extent of one’s ignorance”. Which is the problem we have with China. We don’t really know. Have a nice day.