How Much Does China Really Contribute to Global Growth?

December 30, 2015 6:42 pm Last Updated: January 4, 2016 5:42 am

Because of its high growth rates, many people call China the locomotive of global growth. Especially the International Monetary Fund thinks China contributes more to global growth than any other economy.

“We forecast China to contribute more than before to global output, even though growth is slowing. For exporters, this means China’s expanding market will continue to be a great source of future customers,” the IMF states. According to its calculations, China should add around 1 percentage point to world growth (bringing it to around 4 percent) in the coming years.

However, the argument, like many in economics, is at least semantically flawed. It goes like this: China’s share of global GDP was 16.6 percent in 2014. If it grows 10 percent, it will add 1.66 points to the world total of 100, thus contributing 1.66 percentage points to global growth.

But this is only true if one sees all the different countries in the world as one, which some people say the IMF would like to see in the not too distant future.

If that was the case, a China growing at 10 percent would really add to 1.66 percentage points to the world total. At the time of this publication, however, there were still 188 different countries on the IMF’s member list.

The United States has to deduct its trade deficit with China from its GDP (U.S. Census Bureau)
The United States has to deduct its trade deficit with China from its GDP (U.S. Census Bureau)

China in fact, has subtracted growth from most of these countries by having run massive trade surpluses for two decades—close to $600 billion in 2015 alone.

This means China exports more to the world than it imports. According to the traditional formula of calculating GDP (consumption + investment + government spending + exports – imports), that’s a net negative for the rest of the world. For China the exports minus import part adds to GDP, for the rest of the world it subtracts.

In the case of the United States for example, its trade deficit in goods with China was $307 billion for the first 10 months of 2015. In other words, if China wasn’t there and the United States did not have to deduct $307 billion from a 2014 GDP of $17.3 trillion, its GDP would be 1.8 percent higher.

Looking at the world economy as a market where different sovereign nations compete, rather than the world economy as one whole entity, it is difficult to see how China is contributing to rest of the world growth, when it is actually taking away from the growth of most of its trading partners.