Chinese Stimulus Will Stay to Achieve 8% GDP Growth

Last Thursday, the world learned China achieved 8.9% in Q3 based on year over year, while for the first three quarters the nation achieved 7.7% GDP growth year over year. Having said that, China needs to achieve at least 8.9% in Q4 to reach their average 8% growth for 2009, which means the massive stimulus policy needs to stay for Q4 at least. It was reflected recently in a speech by Premier Wen Jiabao. Chinese Premier Wen Jiabao pledged to continue his government's aggressive stimulus efforts on the World Economic Forum meeting in China last month. The Chinese leaders know that stimulus needs to stay well into 2010 to sustain the growth before the economy can grow itself.

China's $700B stimulus was largely spent on building infrastructure, such as the high speed railway across the nation. As a result, steel demand, hence the metal coal from overseas are sky rocketing. Both Peabody Energy (BTU) and Alpha Natural Resource (ANR) are seeing strong demand from China. The metallurgical coal demand is growing as China uses it to produce steel domestically. China is not importing steel from overseas, which is reflected in the weak demand in international steel names, such as US Steel (X), Nucor (NUE) and ArcelorMittal (MT). Building the high speed railway and other infrastructure will keep the demand of raw materials such as metallurgical coal growing in the next 5 years.