Three major factors pushing the world’s increasing dependency on the Chinese economy

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".

The McKinsey Global Institute recently released a report saying that from 2000 to 2017, the world's economic exposure to China gradually rose from 0.4 to 1.2. This is the inevitable result of the development of globalization. It shows that China is continually expanding into the world and giving impetus to world economic growth. The international community's confidence in the Chinese economy has also increased.

World Bank data shows that from 2012 to 2016 China accounted for 34 percent of world economic growth, more than that of the United States, the EU and Japan combined. China’s continuous contribution to the world has gradually increased the world’s dependency on the Chinese economy.

High-rise buildings and skyscrapers illuminated by colorful lights during the World Economic Forum's Annual Meeting of the New Champions 2019 in Dalian city, northeast China's Liaoning province, July 1, 2019. [Photo: IC]

First of all, China has the world's largest consumer market and the largest middle-income group, with a clear consumption upgrading trend, providing the driving force for world economic growth. The McKinsey Global Institute report quoted World Bank data as saying that China was the source of 31 percent of global household consumption growth from 2010 to 2017. Moreover, in many categories including automobiles, spirits, and mobile phones, China is now the largest market. On the one hand, China has contributed to the economic growth of other countries by importing a large number of commodities. According to statistics, from 2001 to 2017, the average annual growth rate of China's imports of goods reached 13.5 percent, which was 6.9 percentage points higher than the global average. On the other hand, China's massive market creates opportunities for foreign companies wishing to enter China. In 2017, foreign companies, which represented less than 3 percent of the total number of companies in China, created nearly half of China's foreign trade and a quarter of profits for industrial enterprises. Many institutions predict that China's consumption growth may reach 6 trillion US dollars by 2030, equivalent to the sum of the United States and Western Europe together, further promoting the integration of the world with the Chinese economy.

At the same time, China is the only country with nearly all industrial categories, and its supply chain has obvious advantages. The McKinsey Global Institute report notes that almost all sectors are exposed to China, given the sheer size of its economy. China accounts for more than 20 percent of global consumption in 17 out of 20 categories in manufacturing. On the one hand, China's supply chain advantage saves costs for multinational companies and foreign import companies, and attracts multinational companies to invest in China. For example, Apple has about 800 supplier factories around the world, about half of which are located in China. A Goldman Sachs' 2018 study shows that if all production and assembly were to move back to the US, Apple's production costs would increase by 37 percent. Moreover, the final products exported by China contain a large number of semi-finished intermediate items including raw materials and component parts imported from other countries. In 2018, intermediate products imported by China accounted for 78 percent of total imports, which will inevitably help other countries maintain their economic stability.

It should also be noted that China's outbound investment has also played an important role in global economic growth. As the world's second largest source of foreign direct investment (FDI), China's outbound investment in 2018 reached 130 billion US dollars, creating 17 million jobs for recipient countries and 40 billion US dollars in tax revenue. China's outbound investment brings tangible benefits to the host countries, which will inevitably lead to closer economic ties with China.

As things stand, protectionism and unilateralism continue to spread, and the global industrial structure and financial stability have been impacted. Uncertainty in the world economy has risen remarkably. In this context, it is of great significance for China to further deepen reforms, expand opening up, and continue to play the role of the "stabilizer" of the world economy.

In recent years, China has reduced import tariffs in several stages, and the total tariff level was reduced from 9.8 percent in 2017 to 7.5 percent in 2018, facilitating the trend for the global economy to share in the “big cake” of the Chinese market. At the same time, China has adopted the Foreign Investment Law, continually reducing restrictions on investors outside the country’s negative list for foreign investment access, and has expanded the list of encouraged foreign investment industries, indicating its sincerity and determination to expand opening-up. This has enabled the Chinese market to buck the global trend in 2018 with its foreign investment, up 4 percent year-on-year as compared with a 13 percent year-on-year decline in global FDI. Recently, many internationally renowned companies have expressed their willingness to expand investment in China. US retail giant Walmart plans to invest 8 billion yuan in China to upgrade its logistics system in the next 10 years. German software giant SAP is preparing expansion into the Chinese market. American engine maker Cummins is expected to add an additional investment of more than 130 million US dollars to expand its East Asia Research and Development Center in Wuhan, central China. This is a sign that foreign investors are optimistic about China's economy.

China's development cannot be separated from that of the world, and the prosperity and stability of the world also needs China. It is in the process of continuous integration with the world that China is increasingly prominent as a consumer market, supplier and capital provider. In the future, China will continue to carry out its own affairs well and make new contributions to world economic growth by further deepening reforms, expanding opening-up and tightening links with the world economy.