China’s Transition Reverberates Across the Globe | Capital Group

Investment Insights

September 2015

China’s Transition Reverberates Across the Globe

“Global demand for certain metals and agricultural commodities is still dominated by China. Among emerging economies, Brazil is therefore relatively exposed to a Chinese growth slowdown.”

—  Stephen Green, Economist

Stephen Green
Stephen Green Economist Hong Kong office 15 years of experience (as of 12/31/2019)

Slowing growth in China also poses a near-term challenge to other emerging markets. However, it is important to keep in mind that the reforms being spearheaded by President Xi Jinping are aimed at improving efficiency and pursuing a more sustainable (albeit slower) pace of growth. In the longer term, this outcome could benefit global growth and the global economy.

In stark contrast to the mid-2000s — when China’s share of global demand rose substantially across a range of commodities as diverse as copper, soybeans and crude oil — recent data suggest that China’s demand for some commodities is growing more slowly, and in certain cases declining. The structure of China’s economy is changing. Fixed asset investment grew at about 15% in 2014, according to official figures. This rate is about half the level of five years earlier, when the government unleashed massive financial stimulus to counter the effects of the global financial crisis.

China’s transition away from investment-led growth toward an economic structure more reliant on consumption means a painful period of economic adjustment for some nations. To varying degrees, the economies and currencies of commodity-exporting nations such as Brazil, Indonesia and South Africa are already feeling the impact of the changing nature of demand. The weakness in their currencies is consistent with historical patterns of U.S. dollar strength (or foreign currency weakness) coinciding with weakness in the prices of industrial commodities. In turn, the weakness of industrial commodity prices is consistent with weaker global industrial production, of which China is an important component.

China’s Move to More Sustainable Growth Likely to Affect Demand for Commodities Economic and Credit Growth in China (Year on Year) and China’s Proportion of Global Demand for a Selection of Commodities

Chart tracks GDP and credit growth in China along with an increased demand for commodities

Commodity demand data calculated by Barclays Research using data from U.S. Department of Agriculture, BP, Wood Mackenzie, CRU Group and National Bureau of Statistics of China.

Sources: Barclays Research, Capital Group, CEIC Data. 

You might also like: Glide Path Within a Glide Path

Related Topics

Related Resources

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor's, Moody's and/or Fitch, as an indication of an issuer's creditworthiness.

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

Past results are not predictive of results in future periods.

Closex