There is a good deal of uncertainty about the way economic restructuring would take shape in China and the nature of impact it would have on the global commodity market.
The outcome of the third plenary session of the Communist Party of China is eagerly awaited.
The transformation from an investment-led to a consumption-led growth and curbing of its state-owned enterprises oriented investment policy to encourage private initiatives would dampen capacity building in the existing heavy industry based structure and infrastructure building. It would instead favour light industries and start-ups in the service sector such as health, insurance, financial services, transport and supply chain management.
In the past decade, China focused on the creation of basic infrastructure in the coastal regions with a steadfast commitment. The resultant excess capacity and high growth rates of production in many critical sectors was also accompanied by an increasing level of social discontent led by income inequality, which is not acceptable to the central leadership.
To keep pace with rapid migration from rural to urban areas, it is necessary to develop tier-3 and tier-4 cities with a favorable real estate policy.
It would push up sales of affordable houses and infrastructure growth of land-locked regions, which the second level of economic restructuring has planned to achieve.
However, this may not permit a sharp drop in investment share (around 48% of GDP) and replace it with more of consumption expenditure (around 35% of GDP).
In short, it would imply that the Chinese demand for commodities would continue unabated, at least for another two years. Although the new policy harps on economic liberalization, the present restriction on exports of raw materials are not likely to be withdrawn.
China has imported around 668 million tonne (mt) of iron ore in the first 10 months of 2013 with domestic production of iron concentrates at 1,160 mt. At this rate, China is likely to consume around 810 mt of iron ore in 2013 from imported sources that would exceed last year?s level by 9%. Its imports of 61 mt of coking coal in the current year may be higher by a whopping 51% compared to previous year.
Steel exports from China at an annualised rates are to reach around 62.4 mt, more than 12% compared to last year.
This is quite in tune with an increasing rate of 2.7% in production of crude steel in the first nine months and subdued domestic demand.
Thus, even if the growth rate of production in China turns negative in the coming years, the flatness in domestic demand would urge the producers to maintain or even enhance exports.
Prices of iron ore of Indian origin have been hovering between $130-137/t CFR China for the last two months. If it falls below $110 on the risk of Chinese withdrawal, there would be no incentive for exports from India to the much satisfaction of domestic steel producers.
The health of global mining and steel industry has never before been so closely linked with the economic restructuring policy of a country. This unique example of super predominance in the commodity market is likely to stay for some more time.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal