China’s Impact on World Commodity Markets.docVIP

China’s Impact on World Commodity Markets 　　 　　 China is now a major par- ticipant in world commodity markets. The impact of China’s economic activity and its policies related to strategic reserve holdings, trade, and the environment are often seen as having a large impact on commodity prices. In turn, these commodity price changes can affect inflation and the terms of trade at the global level, with possibly large effects on other emerging and developing economics. 　　Understanding the scale of China’s impact on commodity prices is useful from a number of perspectives. First, it can help market participants better assess the balance of risks for prices, based on their own evaluation of prospects in China. Second, at a broader level, it can enhance policymakers’ collective understanding of the driving forces of commodity price changes. Recent discourse related to commodity market developments has increasingly focused on the role of financial speculation, the effects of which are sometimes estimated to be the unexplained part of commodity price changes once supply and demand factors are accounted for. However, this relies on an accurate assessment of these factors, including the changing role of China. 　　China is a large consumer of a broad range of primary commodities. As a percent of global production, China’s consumption during 2010 accounted for about 20 percent of nonrenewable energy resources, 23 percent of major agricultural crops, and 40 percent of base metals. These market shares have increased sharply since 2000, mainly reflecting China’s rapid economic growth. History has shown that as countries become richer, their commodity consumption rises at an increasing rate before eventually stabilizing at much higher levels. This is often described as the Scurve (See Figure 1). 　　But this cannot explain all of the increase in China’s commodity consumption. China’s commodity intensity of demand has been growing particularly fast and is now unusually high. I