CHINA’S IMPACT

CHINESE GROWTH’S GLOBAL IMPACT

China’s Economic Growth: International Spillovers: By Vivek Arora and Athanasios Vamvakidis, IMF working paper

Simply Economics | Manas Chakravarty

Livemint, July 16, 2010

The recent slowdown in the Chinese economy has sparked a big debate about its impact on the rest of the world. The slowing of its economy may be good for China, but will it lead to a double dip in the fragile economies of the West? What will happen to commodity prices? These questions underline the importance of China’s rapid economic growth to the rest of the world.

At the outset, it’s best to clear up some myths. As the authors put it, “While China’s share in world trade has increased dramatically in recent decades it is still small compared with the US. The size of China’s GDP at current exchange rates is only one-fifth that of the US and that of its private consumption is only around one-eighth that of the US (IMF, 2009). Moreover, China accounts for only 3% of world imports of consumer goods and for only 4% of world import growth. China could not, therefore, replace the US as a ‘global consumer’ in the short run.”

That said, China does have a major impact on commodity prices, its surpluses reinvested in US government paper have helped to keep interest rates low in the US, and its exports are a source of envy to competitors and have kept prices low across the world. Also, its importance is growing rapidly. China’s share in total merchandise trade with India, for example, has increased from 0.1% in 1990 to 11.5% in 2008.

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