China's Christmas Day interest-rate rise was a fresh sign of Beijing's determination to cool inflation, even if it means slower growth in 2011. It also should be a wake-up call for those, such as commodities-market bulls, who believe in perpetually high Chinese growth.
Over the next decade, double-digit-percentage Chinese growth is likely to become the exception rather than the norm it has been over the past 10 years. The World Bank expects China's potential annual growth rate to drop to about 7% between 2016 and 2020, compared with 9.6% from 1995 to 2009. That slower expansion will come about mostly from a less rapid pace of investment growth.
On the World Bank's forecasts, then, gross-domestic-product growth of 7.9% in 2015 should exceed investment growth of 7%. By contrast, in 2009, investment growth of 18% on year drove an 8.7% GDP growth rate.
In turn, this likely will see a decline in China's 'commodity intensity,' the amount of commodities used per unit of output, as the country's service sector expands relative to heavy industry and Beijing puts a greater emphasis on energy efficiency.
Capital Economics, a research group, says China's demand for commodities could more than quadruple by 2025 on the assumption that annual growth remains at 10% a year and the economy's commodity intensity is unchanged. Slow that assumed growth rate to 6% a year by 2020, along with a 2%-a-year slippage in the economy's reliance on commodities, and that demand level would be halved.
