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China is putting the pandemic behind it and aiming for less resource-intensive growth

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Workers make protective masks at a factory in Handan, Hebei Province, China on Jan. 22, 2020.

China Daily about REUTERS

BEIJING – While much of the world is still grappling with the coronavirus pandemic, China’s economy is showing signs that it is already past the peak of a domestic recovery.

A sign that the first outbreak is over are commodity prices. China is by far the world’s largest buyer of copper according to prepandemic data from 2019, and demand from the country is influencing prices worldwide.

Copper hit its highest price in about a decade late last month. However, according to the London Metal Exchange, prices have fallen about 6% since then.

The price increases for darker metals like cobalt and lithium, which are used in the manufacture of batteries for electric cars, have also slowed.

“China remains an important source of demand for raw materials, but it is growing at a slower pace,” analysts from the Institute of International Finance said in a statement on Tuesday. They pointed out that, unlike measures that led to a rise in commodity prices or a “super cycle” more than a decade ago, Beijing was adopting more conservative stimulus measures to combat the pandemic.

For the future, analysts expect China to use “policy incentives more sparingly” and grow more slowly by 5% to 6%, which will not stimulate growth in the emerging markets as strongly as in the past.

The Chinese authorities also want to shift the economy’s dependence on consumption and move away from more traditional industries like manufacturing, which would require more raw material purchases.

Recent demand for commodities has been driven by ongoing overseas fiscal stimulus, while China’s attempts to reduce carbon emissions have limited the availability of some supply, said Gu Shuangfei, a commodities analyst at Hangzhou-based brokerage Nanhua Futures. Gu believes prices could rise slightly in the short term, but profits will decline as overseas production recovers.

After the “climax” of the recovery

Data released on Monday for January and February showed that investment in manufacturing and infrastructure had declined over the past two years on an annualized basis, while retail sales rose 3.2%.

“January-February economic data suggests the economy will remain stable even though the peak of the recovery is behind us,” said Larry Hu, chief economist for China at Macquarie and a team in a note on Monday, adding that the primary policy goal will be to curb China’s reliance on debt for growth.

Macquarie analysts wrote in a separate release earlier this month that the removal of political support for the economy is already cooling growth.

China was the only major economy to expand in 2020, posting GDP growth of 2.3%. This is despite a 6.8% decline in the first quarter when the country became the first country in the world to address the pandemic and its restrictions on doing business.

China’s economy returned to growth of 3.2% in the second quarter of last year as the store gradually reopened after strict lockdown measures. With factories overseas still grappling with pandemic restrictions, the high global demand for China-made personal protective equipment and other products has also helped boost China’s exports and overall GDP.

However, uncertainty about future revenues resulted in a decline in retail sales over the past year. The urban unemployment rate also rose from 5.2% in December to 5.5% in February, with the 16- to 24-year-old age group recording a significantly higher unemployment rate of around 13% last month.

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Katherine Clark