As indicated, 2014 apparent rebar consumption in China at 215 million mt was 27 times the USA figure at 7.83 million mt. This year, apparent rebar consumption in China may decline by 12.5 million mt to 204 million tonnes and be flat in the USA; however, the Chinese figure is still 26 times the USA one.
The reason for the disparity, of course, is that fixed asset investment in China, after adjustments, accounts for about 50 percent of GDP, with the steel intensity of the economy being remarkably high when FAI is at such a high level.
In 2004, as indicated, Chinese apparent rebar demand at 46 million tonnes compared to 8.86 million mt for the USA – or, 5.2 times the USA figure.
What do these figures demonstrate? To us, they demonstrate among other things, the validity of the “Capital Fundamentalism” economic theory which postulates its fixed asset spending that drives the growth of an economy. There are exceptions, of course, such as the amazing growth of the service sector in India to 55 percent of GDP from about 38 percent a decade ago because of the power of the Information Revolution.
China’s surge in fixed asset investment has been enabled in good part because of the low interest rates for manufacturing and construction companies when borrowing from the country’s government-owned banks. One of the consequences of this policy was to keep interest rates on deposits unnaturally depressed, which held down household spending as a share of GDP.
China is now in a condition in which the government, even though theoretically speaking, it is determined to boost household spending as a share of GDP, is once again turning to infrastructure projects as a means to bootstrap the economy. It’s more difficult to have as big an impact as in the past. However, because: a) the housing sector in the country is seriously overbuilt; b) municipalities already are burdened in most cases with excessive debt; and c) many of the manufacturing and construction companies are overextended on a financial basis.
If adjusted FAI were to zoom to 58 percent of GDP in the next two years, this means that Chinese steel demand will be higher than forecast and that the potential fallback in demand is even more substantial.
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