The hottest debate out there right now is whether or not China’s economy will experience a hard landing.
In a research note today, Deutsche Bank Metals and Mining analyst Rob Clifford says everyone needs to stop arguing.
“Those arguing about whether China will have a soft or hard landing are missing the point. It has landed already,” he writes.
Clifford is looking at the Chinese economy from the perspective of steel demand. “Steel is a good barometer for an economy’s evolution; it is the first commodity to ramp up and the first to peak.”
To Clifford, the real landing can be traced back to 2007.
In 2007 steel production growth stepped down from the 23% (achieved since 2001) and has been running at 8.9% since then. Despite the step-down, iron ore prices continued upwards. We believe that Chinese steel production will grow so long as GDP growth stays above 3%. Meanwhile, the miners continue to struggle to keep up.
As for the current discussion of the Chinese economic slowdown, Clifford thinks it’s silly.
The binary debate over whether China has a hard or soft landing (whatever these actually mean) is overshadowing the fact that China is still growing (we have not heard an argument that GDP growth in China will be negative).
Here’s a look the Deutsche Bank’s outlook for China’s GDP growth deceleration and along side its demand for steel.
Photo: Deutsche Bank