For thousands of years, the Silk Road was the world’s principle trade route linking Europe and China along which travelled not only people and goods, but also idea and even religion. Stretching more than 10.000 kilometres, the route crossed some of the world’s highest mountains, most forbidding deserts and endless steppes, but was relieved along the way by fascinating cities (Gilgit, Kashgar, Dunhuang, Xian) used as trading centres by the caravans hauling the precious products of faraway lands.
Now China’s economic development, means 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, wood and sugar is set to increase. Forecast models 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.