Beyond Europe, one of the major causes of recent market ructions has been the apparent slowdown in the Chinese economy, but this crisis contains the ripe seeds of opportunity.
There is much to be concerned with about China’s economy. The country’s policy of bringing-forward fixed asset investment (FAI)—so much so that infrastructure, construction, plant and equipment spending persistently accounts for the majority of GDP growth—is inherently unsustainable from the perspectives of value destruction, mal-investment and debt accumulation.
Yet either way, the stage is being set for a boost to the same FAI that has kept Australian mining companies making outrageous profits and Australian homeowners taking outrageous mortgages on the bank-recycled profits of the same mining boom. In the short-term, at least, the houses-and-holes dynamic could be as red-hot as the dirt in the Pilbara.
But that’s the short-term and turning the risk on its head, this same opportunity contains in turn the bitter seeds of crisis. And that crisis is China’s burdened ecology, its dried aquifers, its denuded soil and its smog-choked air, which are also by-products of FAI-led growth.
Certain Australian companies have the inputs to address this, whether in the form of lithium and graphite supply, agricultural products, fertilizer or technology, but the ultimate macro strategy local investors could employ is to look to New Zealand…
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