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How China’s Real Estate Market Drives the Global Copper Industry

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China’s real estate market

We previously discussed how the Chinese government has given its support to its domestic copper industry. The Chinese real estate market also played its part in the country’s growth in copper consumption. In this article, we will look at various factors that drove the Chinese real estate industry.

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Urbanization

China has a population that is almost four times that of the US population, outnumbering the United States ~1.39 billion to 320 million. The population was largely based in villages until China opened up its economy in the late 1970s. China soon became an export powerhouse, manufacturing everything from toys to trains. This economic shift enticed a large population of workers to leave their villages to seek employment in upcoming urban industries.

The net result of this population shift is that more than half of China currently lives in cities, compared to around 10% in 1949. There was a huge population that wanted to upgrade from their long-time substandard living, and the country’s rapid urbanization gave them this opportunity. China’s housing market got a boost from this urbanization, and the per capita copper consumption in China soared as a result.

Major market for global players

China has become a major market for global mining giants like Rio Tinto (RIO). As shown in the above chart, Rio Tinto now gets 35% of its revenues from China, as compared to only 8% in 2003. Other major producers like Freeport-McMoRan (FCX), Teck Resources (TCK), Glencore (GLNCY), and Vale (VALE) also benefit from the higher demand from China. Glencore currently forms 2.82% of the iShares Global Materials ETF (MXI). Freeport currently forms 3.1% of the Materials Select Sector SPDR ETF (XLB).

Along with this demand from end users, a great deal of speculative money also found its way into China’s real estate markets. This is one of the reasons behind the current slowdown in its economy. We will discuss this phenomenon in detail in our next article.

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