Australian mining - the end of the golden weather

Australia: China gloom to end our mining boom?

SENIOR Chinese government policy advisers have said Beijing is unlikely to have the appetite for the new round of massive spending to boost its slowing economy, casting a shadow over Australian miners' hopes of a near-term rebound in the giant economy

the Age

10 September, 2012

Doubts are also growing within China as to whether banks are willing to finance a planned $US156 billion ($150 billion) infrastructure spending spree ranging from railways to roads as many local governments in China are still nursing a three-year-old debt hangover.

The price of iron ore - Australia's most important export earner - dropped below $90 a tonne last Friday from $127 a tonne at the start of July. The collapse in the price has triggered the fear that the mining boom, which has underpinned Australia's prosperity, is over.

Australian miners including BHP Billiton and Fortescue suspended their planned production expansions in recent weeks in light of the sluggish growth in their most important market, hoping for a Chinese stimulus to shore up a falling commodities price.

In recent days, China's powerful economic planning agency - the National Development and Reform Commission - approved big-ticket infrastructure spending projects, taking in ports and hundreds of miles of underground railways.

But the talk of another round of stimulus has been met with scepticism and criticism in China. A leading financial publication in China has called the local governments' stimulus plans ''delusional''.

He Fan, a senior researcher at the Chinese Academy of Social Sciences - an influential government think tank - and a special adviser to China's Minister of Finance, said it was unlikely the government would unleash another round of a large stimulus package and any future spending would be carefully targeted. He said the government was concerned about the after-effects of the 2009 ¥4 trillion stimulus package, which resulted in widespread waste and corruption.

The previous round of stimulus spending was largely financed by banks and many of them were concerned about the ability of the local government to repay their debts. Dr He said ''banks would not make the same mistake again''.

A senior policy adviser to the State Council - the Chinese cabinet - who declined to be named, told BusinessDay the government would not ''drink poisonous water to quench thirst'', alluding to the dangerous policy impetus to apply economic Band-Aid solutions.

The government was pyschologically prepared for the slowdown and revised its gross domestic product growth target down to 7.5 per cent this year, he said.

Deng Yuwen, a senior editor from the Central Party School - the highest training institute for senior party officials and headed by Xi Jinping, who is widely tipped to be the next Chinese president - came out to criticise the planned infrastructure spending.

''Local governments are engaging in irresponsible fiscal spending under the pretext of maintaining stable growth … this will worsen the problem of serious industrial overcapacity and drag down the banks as well,'' Mr Deng said in an essay he wrote for Caijing Magazine, a national business publication. CITIC Securities' - one of China's largest brokerages - managing director Gao Zhanjun, said ''the [Chinese] government will act to counter economic slowdown, but large-scale stimulus is neither necessary nor desirable,'' according to Caixin Media, a Chinese-language business publication.

Still, many believe China's political leaders were preoccupied with leadership change, which could be affecting efforts on growth.

There is a consensus among the Chinese economists that another round of stimulus spending by local governments could lead to even worse economic troubles in the future such as overcapacity, unfinished building projects, local debt crisis, and bad bank loans.