Study On Large-country Effect Under The Influence Of Market Power

China has been playing an increasingly significant role in the international market of metal ores and getting into trouble of large-country effect, especially for rare earth export and iron ores import: buying what’s more expensive and selling what’s cheaper. In this paper, the large-country effect is defined as the huge fluctuation of the prices of Chinese metal ores resulted from changes in the marker supply and demand at the source, and is magnified by unbalanced market power.Firstly, by building Vector Error Correction Model (VEC) and Granger causality test, the large-country effect of China’s international trade of rare earth compounds, total rare earth products and iron ores is confirmed. By variance decomposition, some associated features are disclosed:for rare earth, the contribution to variation of export quantity from fluctuating price in the period between1988and2011is stronger than that after2008, and the reversed contribution after2008is more sensitive. That’s, the large-country effect of rare earth export of China is becoming more remarkable under the act of export quota and benefiting Chinese rare earth industry. For iron ores, import quantity shows a special characteristic of lagging:import large quantities of iron ores continuously at high prices. Obviously, China’s steel industry is bearing welfare loss.Secondly, as the judgment of general welfare of large-country effect existing in China metal ore trade, international market power (including selling and buying market power) is an appropriate research perspective, especially for bilateral monopoly. Taking iron ore and rare earth as examples, this paper uses panel data and adjusted SMR model, and the following conclusions are achieved: when importing iron ores, China is lack of market power, but the exporters have been having great market power; since2006, China’s market power has been increasing quickly and improving trade welfare when exporting rare earth, although the importers’buying market power is still bigger. Australia, Brazil, India and South Africa are still the China’s first choices of importing iron ores, and America, German, Japan and France are main destinations for China’s smuggling of rare earth. Some suggestions about how to develop international market power are given.Next, according to theoretical model of large-country effect, the empirical test on China’s iron ore import proves that the fluctuation of upstream and downstream market concentration rates and supply-demand relationship is the Granger reason of large-country effect. The tension of supply-demand relationship and increase of production concentration exerts an enduring positive impact, and the influence of increasing the concentration degree of China’s iron and steel industry is complex and volatile. Based on the fluctuation of supply-demand relationship, international market power from industrial structure difference enlarges large-country effect, directly and immediately. Furthermore, the policy impact of rare earth needs putting more attention.At last, the following suggestions are given to deal with China’s large-country effect of metal ores according to the above empirical analysis in this paper: improve the concentration ratio in the entire industry, prompt the vertical integration, diversify trade and investment objectives and execute appropriate resources protection policy.