BHP changes tack on China

BHP Billiton was the last of the big miners to accept that the Chinese economy, and therefore the global commodities market, was in trouble.

Last night it switched its bets from "China can't stumble" to "China won't recover any time soon".

By the second quarter of next year it will become clear whether the giant miner was wrong both times.

The Chinese economy is indeed in trouble and the bits that are hurting most happen to be the heavy industries that have driven the five-year commodities boom: steel, aluminium, machinery and power generation.

But most local analysts believe the Chinese Communist Party's sudden and mammoth effort to turn the economy is likely to succeed.

The sector of the economy that the state can most easily reach with its 4 trillion yuan ($A941 billion) rescue package is heavy industry, because it is dominated by state-owned enterprises.

The Government has a balance sheet strong enough to directly fund huge building projects, which will create demand for iron ore, coal, copper and aluminium. It can, and will, leverage its own spending by leaning on state-owned enterprises and especially state-owned banks to open their vaults to the patriotic cause of spending money.

More importantly, China's provincial and local government officials do not need any encouragement to spend money.

"If you add up all the plans coming out of provincial governments, it could be nearly double what the central government is willing to spend," said William Ness, Global Insight's Beijing analyst.

"They're aiming for growth somewhere about 8 per cent. They might be able to hit that."

The new surge of government-sponsored Chinese building will soon begin to prop up resources demand.

In the meantime, China has noted that Australian resources companies are incredibly cheap.

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