The Southern Engines of Growth and Hard Commodity Prices:

Does China Lead to Disruptive Development?

3rd China Postgraduate Network Annual Conference

8-9th April 2010: Oxford University

Masuma Farooki (m.z.farooki@open.ac.uk)

The Main Issues

1. Commodities in Development

2. Commodity Prices

3. China’s Demand for Commodities

4. Optimism for Commodity Exporting Developing Countries?

Commodities In Development

The Resource Curse

– Deteriorating Terms of Trade– Price Volatility– Enclave Economies– Political Instability and Conflict

What’s in a Price Movement?

Commodity Boom:

A peak that is much higher than previous peaks.

The Cycle:

Short Term; a peak/trough to peak/trough measurement.

The Super Cycle:

Medium Term; a prolonged trend rise over a decade.

Commodity Price Movements 1960-2008

0

50

100

150

200

250

300

350

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

Source: UNCTAD All Commodity Price Index

Price Cycle

Price Boom

Super Cycle

2003-2010 Commodity Prices

050

100150

200250

300350

400450

500

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

All Commodities Agricultural Raw Materials Minerals and Metals Oil

Source: UNCTAD Monthly Commodity Price Statistics

What does the 2003-08 Price Movement represent?

• Is it just a Price Boom?

• Is it a temporary interruption of a Super Cycle, due to the financial crisis?

To be a Super Cycle you need:

• Price rise over a decade or more

• Be driven by demand in an expanding economy

The 2003-08 Super Cycle

0

50

100

150

200

250

300

350

2002 2003 2004 2005 2006 2007 2008

Source: UNCTAD All Commodity Price Index

A Southern Driver of Growth

• China: The Large Country Impact – Volume of Demand– International Sourcing

• China: The Developing Country Impact– Resource Intensive Growth– Years to maturity

China’s Share of Global Consumption of Base Metals

  1990 2000 2007

Base Metals ( % Share of World Demand)1

Aluminium 5 13 33

Lead 7 10 31

Iron Ore 4 16 48

Copper 7 12 26

Source: 1 Macquarie Commodities Research (2008)

Optimism for Commodity Exporting Developing Countries?

Chinese GDP/Capita and Mineral Consumption

China’s Importance for Commodity Exporting Developing Countries (1990-2006)

% Share of Region in Chinese Imports of Base Metals

Region 1990 1995 2000 2006

Low and Middle Income 30% 46% 46% 56%

Latin America 9% 17% 18% 27%

Asia 6% 6% 8% 13%

SSA 6% 9% 6% 5%

% Share of China in Regions Exports of Base Metals

  1990 1995 2000 2006

Low and Middle Income 2% 7% 11% 27%

Latin America 1% 5% 9% 24%

Asia 6% 18% 35% 80%

SSA 2% 10% 12% 26%

Source: Author’s calculations from COMTRADE via WITS accessed in July 2009.

Projected Global GrowthGlobal GDP Growth (%)

-10

-5

0

5

10

15

2006 2007 2008 2009 2010 2011

World Advanced Economies Emerging Economies

Source: IMF World Economic Outlook (January 2010)

• China’s demand is expected to remain strong in the medium term.

• China will rely on commodity imports for its consumption.

• Commodity Exporting Developing Countries can benefit from this opportunity.

• Domestic policy will inform how these benefits are translated into development.