China to ‘tap policy brakes’ amid global commodity price rebound, but will look to ‘avoid a policy cliff’

Iron ore, copper and oil have recorded steep price gains this year due to abundant liquidity worldwide as well as the impact of the US$1.9 trillion American Rescue Plan

China is set to ‘tap the policy brakes’ and adopt a more restrained policy stance to rein in debt, but analysts remain ‘bullish on commodity prices’

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China reverted to its old playbook last year, relying on materials-intensive growth driven by infrastructure and property construction to propel a rapid recovery from the coronavirus. Photo: Xinhua

Published: 3:30pm, 19 Mar 2021Updated: 3:33pm, 19 Mar 2021

The run-up in commodity prices, sparked in part by China’s strong economic recovery from the coronavirus pandemic last year, is entering a new phase.

Iron ore, copper and oil are among commodities recording steep price gains this year as abundant liquidity worldwide and the US$1.9 trillion stimulus plan in the United States buoy optimism over a robust global rebound.

The gains assume the rest of the world can offset weaker demand from China, the world’s biggest user of raw materials, as it eases off its own stimulus to curb ballooning debt.

That is viewed as a big ask, but with policymakers in developing countries vowing to do whatever it takes to support growth, and China committed to gradual policy adjustment, commodity prices are powering ahead.

With further expectation of US stimulus and quite a few countries seeing infrastructure investment as a way out of the coronavirus contraction, the commodity cycle may continue for a while

Shuang Ding

“China wants to avoid a policy cliff,” said Shuang Ding, head of Greater China economic research at Standard Chartered Bank in Hong Kong.

“With further expectation of US stimulus and quite a few countries seeing infrastructure investment as a way out of the coronavirus contraction, the commodity cycle may continue for a while.”

China reverted to its old playbook last year, relying on materials-intensive growth driven by infrastructure and property construction to propel a rapid recovery from the pandemic. It was the only major economy to grow in 2020, although its 2.3 per cent expansion was the slowest pace in more than four decades.

The rapid rebound, and supply constraints caused by social distancing requirements, helped spur the recovery in commodity prices in 2020 after earlier steep falls triggered by the pandemic.