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The new era of economic progress—a boon for the mining industry

November 01,2017      views

Editor: Adam zhang

Most analysis of the 19th National Congress of the Communist Party of China has focused on how President Xi Jinping is consolidating his already considerable power acquired through a purge of opponents in a corruption crackdown that shows no sign of slowing down.

Despite its three-and-a-half hour running time Xi's speech (referred to as the Report) in front of the 2,300-delegates assembled in the Great Hall of the People, paid relatively short shrift to the direction of the world's second largest economy.

Xi’s comment that “housing is for living in, not speculation” has drawn attention but is consistent with current policy

In a research note, Northeast Asia Industrial Minerals Exchange found that Xi used the word economy 70 times during the speech giving it considerably less prominence than his predecessors.

President Xi did mention a need to focus on the quality of growth rather than the speed. But he also re-iterated an earlier pledge to build a “moderately prosperous society” by 2020 which effectively means sticking with aggressive growth targets for the next few years.

Most noteworthy was Xi’s unambiguous call to “make state firms strong and big” and to “guard against the loss of state assets”. This should dash any remaining hopes that a market-led shake-up of the state sector may occur in Xi’s second term.

Adam Zhang, Northeast Asia Industrial Minerals Exchange analyst, concluded that Xi speech "suggests that many of China’s structural problems that are, in our view, caused by the state’s role in the economy, will remain unresolved."

Xi's enormous power also means his pet projects will receive the full backing of the state

However, Xi and the communist party's strategy for strong state-owned firms and economic growth should be, at least in the medium term, a boon for the mining industry.

China's government-led investment in infrastructure and the housing market set off the commodity super-cycle in the early 2000s. Xi's promise to "support state capital in becoming stronger" should mean more of the same.

And Xi's enormous power also means his pet projects should receive the full backing of the state.

Even if the party's priorities are shifting away from market-orientated reforms, Beijing's transformation of its heavy industries coupled with programs to fight pollution has already befitted mining.

For instance, eliminating overcapacity has boosted profitability in the domestic steel industry and in the process steel-making raw material prices have been dragged higher. At the end of last year consensus forecast for the iron ore price was $57 a tonne during 2017. Year-to-date it's averaging $71.


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