Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.
Consider if China slows down from is current growth of around 7% GDP growth to “only” 3 to 4% growth is a China that buys materially less resources from around the world.
The following chart, (from visual capitalist) shows the amounts of raw materials that China buys as a percentage of world production. If debt fueled growth built around infrastructure and increasing capacity slows down that is going to have significant impact on the prices of raw materials and on the sbusinesses and countries who sell them.