The answer to where the global economy is headed may well be found in the piles of trash towering above the brick and tin shacks belonging to Beijing's army of garbage recyclers.
On the northeastern edge of sprawling Beijing, the hardscrabble neighbourhood of Dongxiaokou is some 20 kilometres from the glittering skyscrapers that provide this community's livelihood. Here, virtually every scrap left over from a modern life – used computers and mobile phones, household appliances, furniture, clothing, even paper and plastic bottles – is collected, sorted, broken down and sold for cash.
Traditionally, copper has been among the most valuable materials for collection. But this week, after a month of sinking prices, no one is in a good mood.
"The prices are very unstable," said Li Yibing, 42, a nattily dressed native of Henan province whose recycling business consists of a Chinese web portal advertisement, a mobile phone and a crew of about 10 men pedalling three-wheeled bicycle carts, who spend their days journeying all over Beijing to sort through other people's cast-offs. One tonne of copper scrap now earns about 10,000 yuan ($1,580) less than it did a year ago, he said, and there are fewer places buying. "The factories which refine copper, some have stopped or have suspended working now," he said.
Another recycler a few blocks from Mr. Li, who would only give his family name, Jiang, was morose as he sat at home, his mobile phone quiet. Also from Henan, he has been in the business for seven years, weathering the 2008 financial crisis even as many others gave up and went home.
But now, in a corner of his yard, metres-high piles of insulated copper and aluminum wire sit undisturbed, and he said this week has felt "almost the same" as three years ago. "We don't recycle copper any more because the price has fallen too much. The price has been down for more than a month, so I've stopped," Mr. Jiang said. "I don't believe the price will go up. It's a crisis now."
The price of copper – used in everything from household goods to power grids – is considered a bellwether for measuring global demand and, more broadly, economic health. China is thought to be responsible for some 40 per cent of the world's total copper demand, so any fall in the need for copper here can be interpreted as an economic slowdown with repercussions for the rest of the world.
From an all-time high of $10,150 per tonne in February on the London Metals Exchange, copper prices dropped to a 14-month low this month and are now hovering around $7,340 a tonne.
China's monthly imports of unwrought copper and semi-finished copper products rose 11.8 per cent in September, reaching a 16-month high. But, more ominously, its overall export growth slowed in September and a former vice-minister of commerce has predicted that 2012 could bring China's first annual trade deficit since 1993.
At issue in the Chinese economy is, first and foremost, slowing GDP growth, which now sits at 9.1 per cent. Chinese policy makers, dismayed by stubborn inflation, which reached a three-year high this summer, have begun a "soft landing" approach, using interest rate hikes and tightened bank lending to slow growth and stem inflation. The policy seems to be working: Inflation last month slowed slightly to 6.1 per cent. But that comes at a cost, particularly at a time when the threat of another global slowdown is hampering Chinese exports.
The Chinese car industry is seeing demand grow more slowly, hampered by an end to government subsidies on purchases and new anti-pollution regulations restricting who can drive when in major cities. The country's ambitious railway-expansion program has been put on hold for a massive safety review following a major accident that killed 39 people and injured dozens more. And new government regulations restricting home ownership have combined with tighter bank lending to slow the fast-growing real estate sector, which means less demand for copper – in wiring, in appliances and in hooking new buildings up to power grids.
"Copper prices have gone up and down this year, volatility has significantly increased, and a large number of Chinese companies are trading on the volatility of copper. For the next period, the Chinese economy has entered a downward spiral, the industrial slowdown hasn't stopped, and market confidence is clearly insufficient," said Zhou Weifu, an economist with the Institute of Industrial Economics at the Chinese Academy of Social Sciences, a government advisory body. He said while there is some growth in government programs to build affordable housing and expand the rural power grid, it is largely offset by a general economic slump and downturns in both the real estate and auto industries. "A future weak demand for copper on the Chinese market is very likely."
A metals department executive with one of China's largest metals and mining companies, speaking on condition of anonymity because he is not authorized to speak to the press, also forecasts a difficult end to 2011. "In terms of the demand for the last quarter of the year, generally speaking, I suppose the market will be difficult from the real consumption side. Monetary policy is still very tight there and we can't expect such policies will be loosened," he said. "It's very, very difficult to get lending from the banks, and small- and medium-sized fabricators are having to suspend part or all of their production.
"I don't believe there will be any difficulties for copper supply in the local market. My only concern is for real demand," the executive continued. "Consumption has been slowing down and I suppose these kinds of situations will last for a longer time."
That is not to say demand will shrink. Even during the 2008 financial crisis, by a Morgan Stanley calculation, Chinese demand for copper still grew 4.9 per cent.
According to Antaike, the research and reporting agency owned by China's nonferrous metals industry association, China's demand for refined copper was about 6.8 million tonnes last year. Almost half of that, Antaike copper analyst Li Yusheng said, went into the country's power grid, seen as a relatively stable source of copper consumption.
"I think the growth rate [for demand] will slow down but still continue, maybe at 6 per cent year on year," he said, forecasting a price drop to $6,000 per tonne next year. "There are still worries about the Euro zone crisis and there are worries about the Chinese economy because of inflation … I think [the outlook is] still positive, but not as strong as in previous years."
Back in Dongxiaokou, such predictions come as cold comfort to many.
"It's true, a lot of people have gone out of business," said Yang Junlin, who buys and sells scrap as a sideline to his job finishing the interiors of new apartments. "It will take a long time for the price to go back up, and it probably won't be as high."
But Mr. Li, the recycling boss, his black shoes impeccably shined despite the dusty, shabby surroundings, has retained a little more confidence than some of his counterparts.
"I don't think the price of copper will go down as much as it did in 2008. It won't take long for it to go back up," he said. "I think Chinese demand is still good. I do this kind of business, and I know."
Special to The Globe and Mail