China will remain hungry for commodities over the coming 15 years

China will remain hungry for commodities over the coming 15 years. Crude oil and metal ores lead China's commodity imports. As incomes rise and agricultural land becomes scarcer, China's demand for agricultural products such as meat and wood is set to increase. Our forecast model for China's import demand until 2020 shows that demand growth rates will remain in lower double-digit territory over the next decade for most commodities.

Latin America and Africa will continue to profit from the projected surge in Chinese commodity imports. Latin America's share in Chinese imports doubled while Africa's rose fourfold in the last decade to 4% and 3%, respectively. In Africa, China mainly buys oil and metals, while Latin America has benefited from China's rising demand for agricultural products.

Chinese investments in the two regions will increase. Driven by economic, political and strategic considerations, Chinese firms have increased investment activity abroad. While Latin America and Africa still receive only about 1-2% of China's overseas direct investment (ODI), excluding round-tripping, this will likely increase significantly in the medium term.

Commodity windfalls need to be invested wisely. Countries in Africa and Latin America need to use the commodity windfall to diversify their economies towards manufacturing and services in order to generate sustained growth in the medium term.

China's trade with the world has increased rapidly following reform steps initiated by Deng Xiaoping in the late 1970s. Since then, China's total trade value increased by a factor of 30 to USD 1.3 tr in 2005. China recently surpassed Japan to be the third largest trading nation world wide, behind the US and Germany (see chart 1). At the same time, China's importance in commodity trade has grown. The country's fast rising demand for commodities, spurred by industrialisation and higher living standards, is having an increasingly significant impact on world commodity markets and prices as well as the resource-rich regions of the world, particularly Africa and Latin America.

We start out this study with a simple forecasting exercise for China's import demand for the main commodities. Then, we take a closer look at two regions which have been benefiting hugely from China's hunger for commodities , Africa and Latin America and their current trading and investment ties with China. We end with a short assessment of the consequences of the China-driven commodity boom for the outlook of Latin American and African countries.