It was stated that China is currently in its first phase of growth with GDP rising by an average of 10%pa until 2020, in a similar way to the 30-year growth phases at 10%pa that have been experienced by Japan, Korea and Taiwan. From 2020, China was expected to increase its current growth rate into second phase growth.

The shortage in some metals that was expected to be encountered by 2010 was shown by the China Non-Ferrous Metals Association (CNIA) in Table 1:

Table 1. Expected Severe Deficits in Certain Metals (000’t)

Consequently, China needed Western expertise to mine their existing orebodies more efficiently while utilizing best environmental mining practices. Chinese companies also needed to enter into joint ventures over other world class orebodies in the following order of preference, being Asia (including Australia), Africa and finally America. China expected to work with Western companies and a number of positive moves in this regard were expected to be made during the coming year.

Already changes are occurring such as the NDRC (National Development and Reform Commission) stating on 1 December 2004 that China intended to create a more favourable environment with simpler procedures to encourage investment. Government departments would now be required to respond within 20 days to applications from overseas investors. Also overseas investors would no longer be required to submit investment feasibility reports if they decide to set up business in China, and Provincial governments would now have the right to authenticate projects worth less than US$100 million, up from a previous top limit of US$30 million.

The shortage in copper is very easily explained by the degree of building taking place. I visited the Shanghai Planning Museum to see a scale model covering the entire floor of a building of what inner Shanghai is expected to look like in the year 2020 as shown in Figure 1. Greater Shanghai’s population is currently believed to be about that of Australia at about 20 million with the inner city at about 12m to 13m plus possibly 3m immigrants and 4m in the satellite towns.

By 2020, the inner city as shown in Figure 1 was expected to be about 16m plus 4 to 6m immigrants and maybe 15m or so in the satellite cities. By 2040, Greater Shanghai could have a population of up to 60m people, and each one of those apartments requires copper wiring and probably also copper piping. The use of aluminium and copper was being encouraged over the other metals because they were classified as “green” or recyclable metals.

Gold was barely mentioned in the Government presentations because it has apparently been classified as non-strategic. After all, personal savings in banks now total more than US$2.3trn. Some comments were made around the conference on the revaluation of the Renminbi in that it was not expected to happen, maybe after the Beijing Olympics, but then maybe not. Token increases could be made to the value of the Rmb but the fact was that China currently has a surging middle class that needs employing. Revaluing the Rmb would close some factories down, and would hence be unlikely to be viewed favourably.

The increasingly wealthy middle class are focusing on cars and white goods. But at some stage were expected to increase the number of gold jewellery and/or investment items that they own. This is about my 4th visit to China in just over one year, and the changes can be seen happening at a dramatic rate. This time virtually every company visited had flat screens and professional DVD presentations, board tables now include panel mikes, compared to a few VCD / VCR presentations only 4 months’ ago.

At Zhaoyuan which is described as the Kalgoorlie or Gold City of Shandong Province, the river was being dredged and the river banks prepared for paving, dirt streets were being prepared, rubble etc was being removed to enhance what the city is expected to look like.

From what we could see, China certainly has its “act” in gear and is moving ahead at a rapid rate. There are power shortages and Beijing appears to have top priority for power, followed by Shanghai, with Shanghai’s City of Light on show from 7pm to 11pm each night. A number of power stations are being built using different base forms of energy and the situation was expected to have resolved itself by 2006, although given the pace of growth it may not be that simple.

Now what was being said about metals demand and when metal prices would hence peak….

Figure 1. A Model of Inner Shanghai in 2020

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in the stocks that could be influenced by this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.