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posted on 21 June 2016

China, Commodities And Emerging Economies

from the St Louis Fed

Research shows that regardless of the types of commodities exported, commodities prices play a significant role in the growth of emerging economies. However, one common thread among these economies is the growth of China.

A previous blog post explored the connection between commodity prices and output. Research Officer and Economist Alexander Monge-Naranjo and Technical Research Associate Faisal Sohail found that deviations from trend in commodity prices and output are highly correlated for many emerging economies.

However, in an article in The Regional Economist, they also found that China, itself an emerging economy, has become a major importer of commodities. In 1990, China accounted for 2 percent of all commodities traded, while the U.S. and Japan accounted for about 15 percent each. By 2013, China's share had grown to 15 percent, while the share for both the U.S. and Japan had fallen to 10 percent each. The authors noted: "A similar trend holds if we consider only the market for energy commodities, e.g., oil, natural gas and coal."

Why Has China's Share of the Commodities Market Grown?

Monge-Naranjo and Sohail noted that some of the factors behind China's rise have to do with other nations. Specifically, they mentioned that the U.S. has increasingly relied on domestic energy sources, lessening its need for energy imports, and Japan's "lost decade" led to a decline in trade.

But China's rapid growth is certainly a factor. It has averaged 10 percent growth in its gross domestic product (GDP) annually over the period 1990-2013, which has been accompanied by growing demand for industrial inputs. Monge-Naranjo and Sohail noted that China's growth also provided a boost to other emerging economies that were exporting to the country. (For more on how rising commodity prices affect emerging nations, see our blog post "The Connection between Commodity Prices and Output.")

Conclusion

The authors noted that the overall economic fluctuations of emerging markets seem to rely heavily on commodities prices, no matter the composition of commodities for export and their total export shares as a percentage of GDP. They wrote: "Yet, for these countries a salient common factor emerges: the importance of China and its growth prospects."

Additional Resources

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

Source

https://www.stlouisfed.org/on-the-economy/2016/june/china-commodities-emerging-economies

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