China/inflation/resources
The reason China has weak inflation is a) yes, weak demand, but b) [by definition(!) but worth getting one’s head around] too much capacity.
In this case, oversupply in housing, infrastructure, & manufacturing…
…only worsens the problem, with further stimulus.
We are too used to our (e.g. US, Australia) own monetary policy dynamics; weak demand, cut ze rates, spur demand. That’s not what’s required for China.
Given China keeps having these rolling/periodic crises in property, and has high youth unemployment, and has GDP growth that is relentlessly slowing, and has debt/GDP that keeps growing, I keep expecting China not to keep using the same approach.
And so I choose not to own much in the way of iron ore or steel companies, thinking, they’ll change tack/track.
And even when they do stimulate, I tend to just think “well, it’ll be temporary, I’ll wait it out”, and my mind goes to the looming demographic issues.
But again, this just doesn’t seem to be working (so maybe I have the wrong model) given steel demand is sufficiently high enough to use the steel that’s being produced (evidently!) and hence iron ore is set to stay strong.
But I have no conviction in this.
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