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China’s dominance over commodities and the impact it has on a globalist market.

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China’s dominance over commodities and the impact it has on a globalist market.

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In 2017, China imported the most crude oil of any country in the world, surpassing America for the first time in history, importing 8.4 million barrels a day and cementing themselves as the king of commodities for all of the foreseeable future(U.S. Energy Information Administration, Petroleum Supply Monthly and Weekly Petroleum Status Report, China General Administration of Customs, based on Bloomberg, L.P.). Over the past century, China has experienced rapid growth and has continuously been consuming more and more of these commodities to support their voracious growth. Their landmass gives them an advantage in certain sectors such as rare earth metals, but is not apt at feeding a population of 1.4 billion. In essence, this paper will explore some of the commodities consumed by China and the effect it has on the global market.

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Imported commodities have helped fuel China’s ridiculous growth, and are a necessity to China if they don't want to divulge back into a country characterized by the starving of its people. Speaking of which, feeding 1.4 billion people is no easy task, especially with the growing demands for higher quality food. China to be prepared for the fact that as their country continues to develop and become richer, their population will begin to eat more lavishly, like Americans. For example, “It takes about 1 acre to feed the average U.S. consumer. China only has about 0.2 acres of arable land per citizen, including fields degraded by pollution”* China’s current solution to this–in part–is importing massive amounts of food. Consequently, when 20% of the world is demanding certain agricultural products, its going to drive up prices world wide… drastically.

*News, Bloomberg. “Farming the World: China's Epic Race to Avoid a Food Crisis.” Bloomberg.com, Bloomberg, 21 May 2017, www.bloomberg.com/graphics/2017-feeding-china/.

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China's increasing food consumption per capita

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China's increasing food consumption per capita

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https://www.cnbc.com/2015/10/21/how-hungry-is-china-for-the-worlds-food.html

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https://tradingeconomics.com/china/imports-of-soybean

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Soy bean price over historiography, 1998-2018

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Soy bean price over historiography, 1998-2018

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http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

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China's global share of agriculture products, 2010

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China's global share of agriculture products, 2010

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Just the soybeans, meat, and corn are import for this section of the essay

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China imports around 60%* of the world’s soybeans annually, and grows grows 4%*. This is the first commodity that we will discuss that China has great control over. The price of such–as shown in the diagram above–is very much dictated by China’s demand for the commodity. Furthermore, China’s staggering demands have global effects on economies worldwide. The US, has been gradually increasing their net soybean production somewhat in line with China’s increasing demand. But the power of this commodity goes past economics as it lies right in the heart of American-Chinese politics. In the current trade war between the US and China, soybeans is one of China’s most powerful and earliest played cards. As the majority of US soybeans go to China, China’s ability to respond to American tariffs with tariffs of their own on soybeans will massively hurt the US’s agricultural sector. China is forced to import these and massive amounts of a few other agricultural commodities shown below.

*Karuga, James. “10 Countries With Largest Soybean Production.” WorldAtlas, WorldAtlas, 10 Mar. 2016, www.worldatlas.com/articles/world-leaders-in-soya-soybean-production-by-country.html.

*1*https://www.nass.usda.gov/Charts_and_Maps/Field_Crops/soyprod.php

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1990-2013

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As China continues importing more and more of the world's food resources, they drive up the price of the commodity worldwide whilst driving down the price of local goods hurting the Chinese food distributor and further degrading the quality and quantity of their food product. This further incentives China to continue importing food, but it is still a small incentivization when compared to the actual inability of China to feed 1.4 billion people by themselves. Regardless of all this, because China imports such a gross amount of the worlds agricultural product, they still holds the upper hand versus the countries that import into them. In essence, because the chinese demand is so large, countries have upped their production in order to match the ever increasing demands of China; therefore there are more raw products ready to be shipped at any given moment. If any country or group of countries wanted to place an embargo on China, their economies would suffer the wrath of drastically reduced prices of commodities and overproduction, leading to such significant damage to both economies that the idea of placing very strict sanctions like this on China is incredulous. We see this exact dynamic happening with the US trade war with China.

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China's Resource Intensive Growth, pt. 1.

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China's Resource Intensive Growth, pt. 1.

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China's extensive influence on the commodity market spans much more extensively than just food commodities. They completely dominate the most other commodity sectors as well.

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China's Resource Intensive Growth, pt. 2.

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China's Resource Intensive Growth, pt. 2.

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China consumes around half the entire worlds Aluminum, Cement, Nickel, Coal, Copper, and Steel on a year to year basis, and it’s only going up. Needless to say, this isn't all of the commodities of this nature that China consumes. As China continues to build infrastructure and expand, raw material is required to power the industrial moster that China is. The casual Chinese skyscraper built every five days are the pillars for the future of Chinese society will rest upon. Rapid growth, urbanization, and prodigious economic expansion will lead China to once again become the Middle Kingdom. When a single entity is consuming a very sizable portion of a commodity, their supply and demand–as demonstrated previously–will have immense impact on global trade patterns.

When it comes non-energy commodities, specifically metals and industrial goods. For example, China’s imports 50% of the worlds copper, but as China became stricter and stricter on scrap metal, eventually began implementing restrictions such as banning “imports of Category 7 scrap - such as coiled copper cable and waste motors”*. As China has been slowing down their importing of scrap copper, the amount of imports of scrap copper year by year nearly matched the trading price of copper futures.

*Daly, Tom. “As China Restricts Scrap, Metal Companies Look to Process Copper...” Reuters, Thomson Reuters, 8 Jan. 2018, www.reuters.com/article/us-china-copper-scrap/as-china-restricts-scrap-metal-companies-look-to-process-copper-abroad-idUSKBN1EX0OA.

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China's Resource Intensive Growth, pt. 3.

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China's Resource Intensive Growth, pt. 3.

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This is just one of many examples where Chinese policies upon imported industrial commodities has had global affects. Furthering this, countries and companies have had to shape their products to match the newly set constraints by China; as losing a market as massive as China could be equivocal to the loss of billions. China is effectively shaping the economies of the world to adhere to their demand. This doesn't seem to end with copper either. Take steel for example, when china is in control of around 50% of the worlds steel, they have liberty to do whatever they so please to with it. Flooding markets and consequently decimating hostile corporations on a whim. Regardless of that, most the steal goes into infrastructure and the likes(listed below).

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China's Resource Intensive Growth, pt. 4.

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China's Resource Intensive Growth, pt. 4.

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Even now, steel is still exploited current trade war between the US and China. The US recently, announced a 25% tariff on steel imports*. This had major affects on the entire steel industry from the price to production quantity.
Chinas dominance over the metal and industrial commodities is what allows china to expand its infrastructure, produce ridiculous amounts of product for nearly every production based job, and continue its rapid economic expansion. China's policies and import and export patterns all greatly effect global trade patterns.

*Daly, Tom. “As China Restricts Scrap, Metal Companies Look to Process Copper...” Reuters, Thomson Reuters, 8 Jan. 2018, www.reuters.com/article/us-china-copper-scrap/as-china-restricts-scrap-metal-companies-look-to-process-copper-abroad-idUSKBN1EX0OA.

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China’s energy requirement far surpasses any other country on the planet. Consuming 6,310,000,000,000 kW a year, equivalent to 29% of the world's energy on an annual basis*. Supplying a country with this much power requires a ridiculous amount of natural resources to be expended. China, unfortunately, doesn't quite have the abundance of resources required to fuel this newly energy hungry population, so they import quite a bit. Consuming 49% of the world's coal annually and importing around 23 million tons a year, coal provides china with around 64% of their energy. This is simply because coal is ridiculously more abundant in China when compared to resources like gas and oil. China has begun cutting down on their coal usage, and while the total amount of Coal used is increasing, the percentage of China’s energy that comes from coal is on a downwards trend. China is becoming increasingly more adamant about decreasing their energy pollution and moving to more clean methods of energy production like natural gas. China’s use of natural gas has been continuously increasing and seems to be on a steady trajectory upwards. China has abundant natural reserves of natural gas, but the domestic industry has yet to tap in to much of the estimated 33.1 trillion cubic meters of natural gas. Furthermore, China is the leading importer of Oil in the world, surpassing the US for the first time in a century. Importing around 8.6 million barrels a day, coal has been consistently–steadily–rising for the past decade or so. Though China has yet to really touch nuclear energy–unlike france.

*“Contact CIA.” Central Intelligence Agency, Central Intelligence Agency, 1 Apr. 2016, www.cia.gov/library/publications/the-world-factbook/.

*2“China Statistical Yearbook-2015.” National Bureau of Statistics of China, www.stats.gov.cn/tjsj/ndsj/2015/indexeh.htm.

Sun, Kang-Yin DongRen-Jin, and Hui LiHong-Dian Jiang. “A Review of China's Energy Consumption Structure and Outlook Based on a Long-Range Energy Alternatives Modeling Tool.” SpringerLink, Springer, Dordrecht, 17 Dec. 2016, link.springer.com/article/10.1007/s12182-016-0136-z.

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As China grows as a country, the sectors consuming energy increases to seemingly no end, meaning as China becomes more and more developed and its citizens become more consumeristic they are going to have increase in average energy consumption per capita. And because of China's large population, small changes in the average energy consumption per capita requires massive increases in total energy for a country of 1.4 billion. It is seemingly impossible for China to supply its people with energy had they been on par with American energy consumption.

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Its estimated that China has 30% of the entire worlds rare earth metals(including undiscovered REE(rare earth elements)). While not actually too rare, is one of China's more valuable industries. The Chinese government has implemented tight restrictions on the exportation and mining of these metals because of the political and economic ace that it gives them. Because of China's monopoly on REEs, they were able to drive out tons of foreign competition because no one could keep up with the massive output of China. More on that later. REEs are used to produce everything from high power magnets, to smaller computer chips, to nuclear reactors, to military weaponry*. As the worlds technological capabilities increase, the uses of these REEs will only go up–right along with the price. In summation, these metals are some of the building blocks of future technology, and China has a monopoly on them. Jumping back to China's regulations on REEs, in 2015, in China's power play over the world, they restricted exported REE's to 35,000 tons from 130,000 tons. And because the world relies on China for their REE's, they had a right to be worried, for China could and has restricted these commodities on whim. In 2010, during a dispute with Japan, China stopped REE imports to Japan altogether. The US and Japan fruitlessly tried to stop China's near tyrannical rule over these metals but failed. China's Rare Earth Metals are untouchable. Global demand for REE will only increase and China will only become richer. This monopoly will likely be one of China's most valuable assets in the current trade war and decades, even centuries to come.

*“What Are 'Rare Earths' Used for?” BBC News, BBC, 13 Mar. 2012, www.bbc.com/news/world-17357863.

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A logical counter argument to this is that China doesn't hold the upper hand in trade deals and is subject to the whim in other countries. For example, when steel imports from Indonesia were halted they were a dominant force in the steel market that produced and provided China with much of their steel. While this is true for a few commodities, it isn't a large enough problem to constitute true worry, as even in cases, like America soybeans, there are very often other major suppliers whom China can import from.