Beijing’s new stimulus package is expected to benefit the faltering capesize dry bulker markets, but the distressed Chinese property market and the zero-Covid policy continue to pose risks to any recovery. To spur economic growth, the State Council last week approved a Yuan300bn ($43.4bn) budget allowing state policy banks to invest in infrastructure projects. That was in addition to Yuan300bn announced in June. Combined with Yuan500bn of special bonds from previously unused quotas for local governments, the measures will lift the total funding largely focused on infrastructure spending to more than Yuan1trn. Total spending could end threefold higher when including related corporate investment, according to a Bloomberg report. 

“We remain positive that demand from infrastructure projects should improve in the coming months, supported by China’s policies,” said BIMCO’s chief shipping analyst Niels Rasmussen, adding that the stimulus could help boost China’s appetite for iron ore imports. The import volume declined 3.3% year on year for the first eight months of this year, the shipping association said in a research report, citing preliminary shipping data from Oceanbolt. Amid lackluster demand from China, the world’s largest buyer of iron ores, the freight market for capesize bulkers, the main ocean carrier of the commodity, remains in the doldrums. The average daily weighted time charter rate for capesize on the Baltic Exchange has dropped from a peak so far this year of $38,169 on May 23 to just $2,505 at the end of August, before it rebounded to $6,076 on September 2. Meanwhile, the Chinese economy this year has been plagued by a string of factors, including heavy-handed lockdowns triggered by a revival of domestic infections and the housing market turmoil.

The country’s gross domestic product grew 2.5% for the first half of 2022, with almost flat growth in the second quarter. The full-year growth forecast by various organizations is in the range of less than 3% to just above 4%, way off the official target of 5.5% set earlier in the year. The situation may change if Beijing adopts a “courageous” monetary policy, which could lead to a strong boost in activity with excessive results for the [large dry bulker] freight market,” Thomas Chasapis, an analyst at Greek-based Allied Shipbroking, said in a report this week. There are, however, doubts over how aggressive the policymakers can become. China is unlikely to repeat what is seen as a reckless monetary policy during the 2008 global crisis, with concerns over a shoot-up in the country’s already high debt ratio and its aspiration to shift the growth engine from property-heavy investment to consumption, according to another ship brokerage Braemar. “Supportive measures are likely to remain targeted, focusing on infrastructure and consumption, while only doing the bare minimum to keep the property market afloat. Demand should remain anemic until the systemic headache of the housing market is addressed and resolved,” said Braemar analyst Alexandra Alatari. “Until then, the Chinese economy cannot recover sustainably.”

BIMCO said a return to growth in Chinese iron ore imports will be heavily dependent on a stabilization of the housing market, which makes up 10%-12% of China’s gross domestic production and is the main user of steel in the country. “A recovery would be a boon for especially capesizes that have recently suffered an 85.5% drop in the Baltic Exchange Capesize Index due to increased supply following a reduction in congestion,” said Mr Rasmussen. That prospect, however, has been compromised by Beijing’s resolute refusal to live with Covid, an approach that has been adopted by most of the countries elsewhere. “China’s zero-Covid policy has greatly affected business and consumer confidence in 2022 and that is clearly visible in the sluggish housing market. Any new and prolonged large-scale lockdowns could, however, threaten a recovery in the housing market and thereby a rise in demand for iron ore,” said Mr Rasmussen, adding that a recent lockdown in Chengdu — one of China’s biggest cities, with a population of 21m — is a case in point. Recent infection waves have also hit several other major Chinese cities, highlighted by Dalian in the north and Shenzhen in the south, where strict restriction measures, including a partial lockdown, are put in place.