The Rudd strategy Part II: just how good is China's economy?

An initial 2.7 million jobs are estimated to disappear. Demonstrations by sacked workers demanding unpaid wages are increasing.

Mining and heavy industry are also suffering

The shut down of heavy industry and power generation to reduce pollution during the Beijing 2008 Olympics is blamed for the steel industry slowdown. The real causes however were evident in June 2008.

Steel

China produces 40 per cent of the world's steel.

Construction, household appliances and the car industry are China's major domestic steel consumers. The property sector alone consumed 38 per cent of that demand.

Restructuring the steel industry, improved efficiencies, fierce competition between the new giants and steadily declining demand resulted in oversupply and plummeting steel prices. Since June 2008, ore stockpiles were increasing at terminals and steel mills. Suppliers were asked to delay shipments. Brazil shipments have almost ceased.

By mid September domestic steel prices had dropped by 37 per cent and spot prices dropped 44 per cent.

Major steel mills in the north, central and south are cutting production. One Hebei group cut production by 20 million tonnes, (35 million tonnes iron ore equivalent). A further 20 per cent cut is forecast November/December. Another Hebei mill shut the furnaces and sent workers home.

Facing operating losses of US$150 per tonne, commissioning of the new hi-tech Caofeidian steel mill is delayed indefinitely.

Coal mining

Like steel, China's coal industry is also undergoing major restructuring. Thousands of smaller mines are closing adding to unemployment.

New huge mechanised open cut steaming and coking coal mines are opening in Inner Mongolia and Mongolia. Dedicated heavy duty railways connect the mines to major industrial and power generating bases in China reducing transport bottlenecks caused by the endless convoys of trucks and trains from the smaller mines, forcing more closures and layoffs.

What is China's consumer economy

China's 1.3 billion population is considered a massive untapped consumer market. The reality however, is different.

Eight hundred million of the 1.3 billion "consumers" are categorised as rural peasants. Add to that the hundreds of millions of low paid urban workers and unregistered individuals. China also has the world's largest rapidly growing aged population.