RDP 2010-08: Sources of Chinese Demand for Resource Commodities 5. Conclusion

This paper provides evidence that China's manufacturing exports have been a significant driver of its demand for resource commodities. Data on Chinese investment indicate that manufacturing was the strongest driver of growth in Chinese investment prior to the recent global financial crisis. Analysis of input-output tables shows that, over the past decade or so, the manufacturing sector (which accounts for most of China's exports) has been more important than construction as a direct consumer of resources and intermediate metal products. Accounting for indirect linkages between industries, it is found that manufacturing has been at least as important as construction as a source of demand for metal products.

Econometric results based on a gravity model of resource trade show that, controlling for domestic expenditure (including investment), exports are in general a significant determinant of a country's non-oil resource imports, and that this has been true for China as well as for other countries. This implies that China's resource demand is influenced by developments in the rest of the world. Consistent with the resource-intensive nature of much investment, the results also indicate – in China and elsewhere – a significant role for investment as a source of resource demand. This is in line with previous literature highlighting a dual role for investment and exports as drivers of demand for resource commodities. However, it appears that, over recent decades, a sizeable proportion of China's investment can be traced to the growth of its domestic and export-oriented manufacturing operations. Thus, while much of China's demand for resource commodities over this period has been driven by investment, it appears that this investment has in turn been sensitive to global influences.