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Why China’s slowdown isn’t as bad as it looks for ASX 200 mining shares


Workers at the port joyfully jump high in the air with shipping containers in the background.

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S&P/ASX 200 Index (ASX: XJO) mining shares are under the spotlight as China goes through a bumpy ride.

As Reuters reported today:

China’s ‘zero-COVID‘ policy – including stringent lockdowns, travel restrictions and mass testing – has taken a heavy toll on the country’s economy. The government’s crackdown on big technology companies has also had an outsized effect on the young workforce.

Unemployment among people aged 16 to 24 stands at almost 19%, after hitting a record 20% in July, according to government data. Some young people have been forced to take pay cuts… Almost 60% of people are now inclined to save more, rather than consume or invest more, according to the most recent quarterly survey by the People’s Bank of China (PBOC), China’s central bank. That figure was 45% three years ago.

Why ASX 200 mining shares could be okay

Wealth manager Ken Fisher writes in The Australian that some market commentators are suggesting Australia could suffer because China buys so much of Australia’s resources. That demand could reduce if China’s economy grows at a slower price.

He did acknowledge that 40% of exports went to China in 2021. Compared to 27% in 2011 and 6% in 2001.

But there’s a question worth asking. How come Australian exports to China are down 11.3%, yet Australian exports are up 30.3%?

The answer is that exports to Japan, Europe and India have all more than doubled. Exports to South Korea are up 64.7%. Natural gas is one factor that can help Australia, with energy demand rising. Metals that help electrification can also “support metal prices and expand export markets”.

His main point is that “Australia simply isn’t China-reliant”.

But, even with all the uncertainty and volatility, he notes that headlines are focused on recession fears, yet “very little suggests a deep downturn”. This could be positive news for ASX 200 mining shares.

Manufacturing indicators suggest growth for both the world as a whole and Australia. The manufacturing new orders index reportedly expanded as well, which Fisher said was “great news, given today’s orders are tomorrow’s production”.

Optimistic outlook

In concluding his thoughts about China, Fisher writes:

Inflated China fears have stalked Australian stocks for years. But remember: False fears are bullish, always and everywhere. So is depressed sentiment. Don’t let today’s gloomy headlines scare you from the coming recovery.

ASX 200 mining share snapshot

At the time of writing, the Fortescue Metals Group Limited (ASX: FMG) share price is up 0.99% today, the BHP Group Ltd (ASX: BHP) share price is up 0.63% and the Rio Tinto Limited (ASX: RIO) share price is up 0.89%.



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