The contemporary China resources boom

Authors


  • This draws on a paper that I presented to the Australian Agricultural and Resource Economics Society’s Annual Conference in Sydney in January 2006: ‘The China Resources Boom’. The ideas presented here are expanded in a forthcoming book with Ligang Song, ‘China’s Test of Limits to Growth’ (Oxford University Press, forthcoming 2012). I am grateful for the assistance of Sui Lay Tan in preparing the figures, to Veronica Webster in preparing the manuscript for publication and to two anonymous referees for helpful suggestions.

Abstract

Commodity prices are formed by the interaction of global economic growth and costs of expanding supply of commodities. They tend to be high for long periods when global average growth rates are high, and low for long periods when growth rates are low, and to fluctuate around these averages as short term demand departs from expectations. The growth of advanced developing countries is especially influential in determining global demand for resources. Exceptional growth and resource intensity of China have been the main determinants of high energy and metals prices since about 2003. Short term cyclical factors have pushed energy and metal prices higher still, because markets did not anticipate the strength of Chinese demand and supply takes time to catch up. The high resource intensity of Chinese growth has been the result of high investment rates and rapid increases in urban population and the export share of production. Strong growth is likely to continue although at slowly receding rates, but growth will become less resource intensive, leading to moderation of global commodity prices. Strong growth in China and the world are at risk if effective policies are not adopted to break the nexus between economic growth and pressure on the environment.

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