China’s development comes at a price – Capital Economics

FXstreet.com (Barcelona) - China’s development has had a significant impact on emerging market growth, and not all economies have unambiguously benefitted. According to Analyst Daniel Martin at Capital Economics, “Even countries that have made the most of Chinese demand may find themselves ill-positioned for the next stage of China’s development as it moves away from its investment-heavy growth model.”

Commodity exporters have been among the biggest winners from China’s rise. Its investment boom has resulted in disproportionately high demand for natural resources. Outside of Asia, countries that are rich in natural resources are exporting most to China. “Demand from China has also led to an increase in global commodity prices, which has improved the terms-of-trade of commodity producers. Some economies have, understandably, become more reliant on commodities as a result.” Martin adds.

Unfortunately, specialization in commodity production has not historically been a route to prosperity. “What’s more, commodity exporters will need other sources of growth as China moves to a growth model less reliant on investment. The economies of Latin America and the Middle East look most vulnerable in this regard, although the latter are insulated to some extent by the accumulation of substantial savings over the past decade.” he notes.

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