China’s Impact on Commodity Markets: Implications for Australia

China’s meteoric rise to becoming one of the world’s economic superpowers has redefined global economic growth, specifically, the fundamental drivers of commodity markets. China’s advancement has had significant ramifications for commodity exporting economies, including Australia.

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China’s meteoric rise to becoming one of the world’s economic superpowers has completely redefined global economic growth, and more specifically, the fundamental drivers of commodity markets. China’s advancement has had significant ramifications for commodity exporting economies, including Australia, integrating the fortunes of these countries more than ever with the continued success of economic development in China (and the rest of developing Asia). Previous work by the NAB Economics team has covered some of the economic linkages between Australia and China, but this paper takes a slightly more focused approach by looking more closely at the transmission of Chinese demand through global commodity markets (largely concentrating on iron ore – Australia’s largest commodity export).

Understanding the transmission is particularly important as China attempts to transition from a capital and commodity intensive growth model reliant on the state sector to one that is more driven by consumption and the private sector. This is going to require ongoing economic reform, and we will need to wait and see whether China’s new leadership is up to the task. Regardless of how these reforms unfold, the growth model that has afforded China economic success (in terms of growth) has also brought about significant imbalances that need to be addressed to avoid a disruptive adjustment. What this will mean for commodity exporting nations remains a topic of hot debate.

For further analysis download the full report.