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Commodities protected in China downturn

04/11/2012 @ 6:48am

Commodity markets won't be hurt by a slowdown in China's economic growth rate unless that growth cools to under 7% a year, the president of Brazil's Institute of China and Asian Studies, Ibecap, said Tuesday.

"So far there's been no impact [on commodity markets] from the Chinese growth slowdown as there's not been any actual reduction in purchases. With growth continuing over 7% the world still carries on calmly, the world economy remains stable and markets relatively buoyant," said Severino Cabral, Ibecap president, speaking on the sidelines of an event on Brazil-China trade links in Rio de Janeiro.

"Seven percent economic growth in China means billions of dollars in purchases the world over and imports of $1 trillion a year. But, if this growth falls below 7%, then we'll have a markets catastrophe worldwide, products will be in oversupply, because as well as being the world's second biggest importer, China's the world's biggest exporter," Cabral warned.

China is due to report its first-quarter GDP result Friday, amid expectations of a slowdown from the 8.9% annualized growth rate in the final quarter of 2011. On Tuesday the government announced that the country's trade balance moved to a surplus of $5.35 billion in March from a deficit of $31.48 billion in February as imports plunged, indicating lower demand.

Ibecap still expects annual growth of 8.5% in China this year, above the government's 7.5% target.

"Growth's being upheld by the government's plan to take the population to a European standard of living by 2050," Cabral said. "China's economy is moving towards a GDP of $10 trillion, compared with some $15 trillion in the U.S."

Since 2009, China has been Brazil's biggest trade partner. Last year, Brazil's main commodities exports to China, iron ore and soybeans, accounted for three-quarters of the country's total exports to the Asian giant of $44.3 billion.

Francisco Mauro Brasil de Holanda, director, East Asia Dept, of Brazil's Foreign Affairs Ministry, said at the event that the medium- to long-term trend is for China's growth rate to fall, and that this will impact the mineral commodities markets more than the food commodities markets.

"The impact will be greater on mineral commodities because of the intense industrialization drive which will one day level off," Brasil de Holanda said. "More than 50% of China's population already lives in cities, a higher rate than in India, where 70% of the population is still rural. Food commodities will be affected less than mineral commodities by any slowdown in the economic growth rate, since when people come to live in the city, they eat more.

"However, there's no danger of any abrupt fall in demand [for mineral commodities]. The plateau is still years off . The government has a program to build 300 million houses, which is something quite extraordinary," Brasil de Holanda said.

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