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Australian Mining – Is it Boom, Bust or Steady as she goes?

Sept. 2012

Recent weeks have seen growing debate around the Chinese economy and its effect on the Australian mining industry.

On the back of speculation about an imminent economic blowout in the world’s second-largest economy – China;  plummeting Australian mining profits and resource projects shelved – the tongues started wagging ”the boom is over” and the road ahead is a rocky one (no pun intended).

China set a 7.5 % target for economic growth in 2012, but some analysts’ fear that could be missed as a global slowdown drags down activity.

Indicators such as the manufacturing Purchasing Managers’ Index and electricity consumption, suggest that China’s economy is suffering a downturn due to reduced export and domestic demand. This has the pessimists claiming the country cannot meet its annual economic growth forecast and this in turn will trigger lower demand for Australian resources and drive lower prices and produce an end to the mining boom.

All makes good sense I hear you say????

Well just last month  Reuters reported  – “China is on track to meet this year’s target for economic growth and if needed the government could utilize a 100 billion yuan fiscal stability fund to boost growth, Premier Wen Jiabao said on Tuesday.”

And according to IMF forecasts – global GDP growth rates are increasing year-on-year and the economy in 2013 will be in a slow but potentially in a stable recovery mode.

Other reports indicate that there will be greater than $150 billion of capital spending by Australian companies within this fiscal year. Still significant spending one would suggest. The Treasury Secretary, last week stated that indicators suggest the mining sector’s expansion has much further to go and could remain near record high levels until the middle of the decade.

Indeed, China’s economy is going through a tough time now following an average of almost two-digit annual growth over the past three decades, with its economic rise slowing for nine consecutive quarters after its GDP growth spiked to 11.9 % in the first quarter of 2010.

But is China’s economy really sliding into a hard-landing as some forecast?

China’s slowdown is due to falling demand from Europe and the United States, as well as the global economic downturn in general. But there is also structural change as the Chinese government has tightened regulation in the property sector and initiated other means to rebalance its economy.

The Chinese government has plenty of fire power and we cannot forget that they are aiming to increase domestic retail sales by 15 % annually to reach 32 trillion yuan by 2015.

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