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Chinese Smog: Impact on the Dry Bulk Market

March 15, 2014
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It doesn’t take much to realize that when you need a virtual sun to imagine what the real sun is like, it is time to cut the use of pollution inputs. However, this will come at a cost to Chinese society and development.

China has reached this point. Its cities are being choked by pollution. The life expectancy of its citizens is being shortened by poor air quality. To reduce the impact of pollutants, industrial production will be negatively impacted. Power production will also be affected. GDP growth and the expectations of future GDP growth will have to adjusted lower. Making these adjustments will not be easy or without challenges.

One should expect that a residual industry, such as dry bulk shipping, which carries coal and iron ore, will be negatively impacted as production is cut to reduce smog and pollutants. And though there are those who suggest that mines in China will be closed before those in international markets, because the mines in international market produce cleaner commodities inputs, these analysts are mistaken as the mines in China provide employment to domestic workers, and as such, the international miners will be the workers to be impacted first.

China’s Finance Minister Lou Jiwei, stated (March 6th) that China’s recently announced economic growth targets (“GDP”) are flexible and that the jobs target is the most important” target. He further went on emphasize that “whether the eventual [GDP growth rate] is above or below 7.5% isn’t particularly important, but employment matters more“. While the Chinese are aiming to create 11 million new jobs this year, Mr. Lou stated more can be achieved.

In the meantime, watch the virtual sun shine.

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