Around the world, shares are up and people are investing
more on new buildings and equipment. There are many events that factor into
this upturn, but The Economist looks
to China as the spark for change. As we learned, normally growth comes from the
investment of new facilities, but in China they have been cutting back and
tackling their overcapacity problem which has boosted the economy. China
accounts for roughly half of the global production of steel, coal, aluminum,
glass, and cement; but the unused steel capacity equated the total output for
the next four biggest producers. This excess weighed on global prices and
deflated profits for all. China has an idea to cut production which would raise
prices and increase profits. Now we see that coal and steel prices and profits
have soared. As optimistic as this sounds, the tendency towards overcapacity
still lurks and there are several shortcomings including the concerns that high
prices will lead once more to surplus capacity.
https://www.economist.com/news/leaders/21728640-investors-have-been-cheered-sweeping-cutbacks-they-should-look-more-closely-making-sense?cid1=cust/ednew/n/bl/n/2017097n/owned/n/n/nwl/n/n/NA/62219/n
Very interesting that China is producing too much for its own good. A large portion of China is rural. I wonder if further local investment in infrastructure would limit the negative effects over overcapacity.
ReplyDeleteAs large a producer of steel, aluminum, and cement, one would think that some portion of this production would go towards domestic infrastructure investment and the housing market as far a development. I'm curious as to how much growth is currently happening from such investments.
ReplyDelete