Research On Pricing Power In Chinese Bulk Commodities Trade

After thirty years of reform and opening up, China has become the world’s second largest economy due to its rapid economic development. As the world’s largest developing country and the world’s most populous country, China has an increasingly demand for bulk commodities with rapid economic development. China has become a net importer of many bulk commodities. For instance, China is the world’s largest importer of iron ore and soybean, and the second largest importer of crude oil. However, China has little control over bulk commodity pricing and has to passively accept the prices. Thus, China has to bear the impact and risk of bulk commodity price fluctuations on the economy.Based on a large number of the existing literature, this paper first takes point of view in the concept of bulk commodity and characteristics of international trade, and then analyzes the role of financial derivatives in the fight for bulk commodity pricing. Using iron ore, crude oil, and non-ferrous metals as examples, the paper describes the impact of bulk commodity price fluctuations on China’s economy, and analyzes the reasons for the lack of pricing power in bulk commodities. The reasons for China being in a weak position and not having a say in the international trade of bulk commodities are that the lack of bulk commodity pricing strategies, national oligarch monopoly on bulk commodities, speculation of international hedge funds, immaturity of China’s financial derivatives market, the domestic industries with excess production capacity and low concentration, and disadvantages of acquiring business information. According to the above aspects, the paper presents strategies for gaining more power in international pricing for bulk commodities. Moreover, it suggests China should focus on developing the financial derivatives market and accelerating the process of internationalization of the RMB.