A very good working paper from the IMF, which generally does rather good working papers on geopolitical themes, makes the point that China is not “merely” the engine that might yet haul the global economy back onto a growth track. Rather, it is an economic phenomenon that in some senses eclipses – at least for speed of development – both the UK and Europe’s pace of change during the industrial revolution and the boost to the US economy that came with the opening up of the American West and the creation of the railroad age.
As the authors put it:
“The size of the economy has increased nearly twenty-fold in U.S. dollar terms in the last 30 years. Real GDP growth has averaged 10 per cent annually, with the implication that GDP has doubled every 7–8 years. Several hundred million people have risen out of poverty and living conditions have improved in a variety of dimensions… The fact that these developments have influenced a population that accounts for one-fifth of the world’s people makes China’s rapid growth one of the most important economic developments of our lifetimes.”
The authors set out to look at the impact of China’s economic growth on growth in the rest of Asia and in the world economy over the last five decades. The channels through which the China phenomenon could impact growth elsewhere are many and various. They include the importing of commodities, processing of outputs and, over time, the shipping of final products. Moreover, the greater availability of cheaper goods from China allows more people to buy and stimulates markets in partner countries. China’s impact on the Asian supply chain gives smaller countries greater access to global markets than they would have on their own. Then, of course, there is the not so positive, bubble generating impact of China’s trade surplus capital outflows into US Treasuries, driving down yields and creating a global appetite for more risk in the hunt for more yield.
What the authors find is that the growth spillovers from China amount to around a 0.5% increase in the growth of other countries for every 1% growth in China. Initially, in the early decades, this growth impact was restricted to China’s neighbours but as the authors put it, “the importance of distance (as a restraining influence on the impact) has diminished with time. An important qualification here is that China’s growth impact has not been uniformly positive. The authors find that China’s net export growth has been positive for Asia, but “somewhat negative for several large countries in other parts of the world”.
Of course, you only have to have a passing familiarity with the protectionist cries coming from developed countries with home industries faced with even the prospect of high volumes of cheap Chinese imports, to register this point, but the authors are not concerned with this type of detail. Nor do they look at the growth not just of the Asian supply chain, but of the global supply chain, which, along with inward investment flows, allows corporations in developed economies to benefit directly from growth in China. The paper is very deliberately an economist’s exercise in calculating transmission impacts and even then, is only a starting point. The authors want to see more work done quantifying the various channels of transmission and they acknowledge that those channels may change over time with changes in the structure of the Chinese economy and its trade and capital flows.
Further reading on the Chinese economy, Asian economy and the global economy:
- Toward a Total Global Strategy, by George Yip
- China’s Financial System: Challenges and Opportunities, by Fred Hu
- Global Ambitions—China’s Big Banks, by Sir John Stuttard
Tags: Asia , asset price bubbles , China , export , global imbalances , international differences , protectionism , real economy