Coronanomics (4) - Chinese Economy and The Rest of the World

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Wednesday, June 10, 2020 /  07:00 AM / by Proshare Content/ Header Image Credit:  EcoGraphics


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China's influence as a market, supplier, and provider of capital has expanded over the last two decades. There has been an increase in the exposure of the rest of the world to the Chinese economy. The Chinese economy accounts for 35% of total global manufacturing output, while it was the source of 31% of global household consumption growth between 2010 and 2017. Also, in many categories including automobiles, spirits, luxury goods, and mobile phones, China is the largest market in the world, accounting for about 31% of global consumption. China was the world's second-largest source and second-largest recipient of foreign direct investment (FDI) between 2015 and 2017 (see Chart 12).

 

Chart 12China-World Exposure Index

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Source: McKinsey Global Institute analysis, Proshare Research

 

Countries with regional proximity, significant trade in resources, and cross-border capital flows are most exposed to China.

  • Asian economies are tightly linked with China through regional supply chains; there has been an increase in the exposure of Asian countries to China, as China is the export destination to most of the Asian economies. The Chinese economy is the largest trading partner in Malaysia, Singapore and the Philippines. Chinese outbound FDI was equivalent to 6% of domestic investment in Malaysia and 5% in Singapore between 2013 and 2017.
  • Resource-rich countries are highly exposed to Chinese demand; Countries that export natural resources are highly exposed to Chinese demand. Chinese imports now account for 15% of production in South Africa, compared with only 2% in the period from 2003 to 2007. Chinese imports now account for 16% of gross output in Australia, compared with just 4% in the earlier period. Iron ore alone accounts for 48% of Australia's exports to China, and 21% of Australia's mining and quarrying output is exported to China.
  • Some emerging and smaller mature economies are highly exposed to Chinese investment; From 2013 to 2017, Chinese outbound FDI was equivalent to 13% of domestic investment in Egypt and 8% in Pakistan. According to Mckinsey Global Institute analysis research in 2017, it discovered that China was the largest source of finance for infrastructure, the third-largest source of foreign aid and Africa's largest trading partner.
  • Large developed economies have relatively lower exposure to China;  Developed economies have relatively lower trade and investment exposure to China. Exports to China typically account for less than 5% of gross output, and imports from China account for less than 5% of domestic consumption. Also, Chines FDI was equivalent to less than 1% of domestic investment( see Table 5).

Table 5: Countries Exposure To China Based on Regional Proximity, Significant Trade-In Resources, and Cross-Border Capital Flows 

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Table 6: Technology, Labor-intensive Tradables, and Resource Value Chains Exposed To Trade With China

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The world economy is exposed to China through trade in five distinct ways:

  • China is integrally embedded in the value chains of the electronics, machinery and equipment sectors. It accounts for 17 to 28% of global exports and 9 to 16%
  • The world depends on Chinese output in highly tradable light manufacturing and labour-intensive sectors. Sectors in which China has served as a factory to the world are exposed to Chinese production. China accounts for 40% of global exports in textiles and apparel, and 26% in furniture.
  • Upstream sectors have increased exposure to China as a result of China's industrialization. Sectors that produce inputs for further processing are exposed to Chinese imports. The Chinese manufacturing sector growth has significantly increased its demand for raw materials and intermediate goods that are processed into final goods, and growth in per capita income has increased demand for goods overall in China. China accounted for 7% of global mining and quarrying imports from 2003 to 2007, and its share grew to 21% from 2013 to 2017.
  • In other sectors that are highly traded globally, China is not a major player. In sectors where companies focus on serving rapidly growing local demand and local content requirements are in place, trade exposure to China has remained relatively low despite high trade intensities. For example, China accounts for only 4% of global pharmaceuticals exports and 3% of global imports. Similarly, in motor vehicles, China accounts for only 3% of global exports and 7% of global imports, despite a relatively high trade intensity. However, given that China is a large market for these sectors, a local presence is important for companies wishing to serve that market. 
  • Sectors that are not globally traded tend to have low exposure to China. Five have been noted to have relatively low trade intensities, as a "local production for local consumption" archetype. Despite relatively low trade intensity, China accounts for a large share of trade in some of these sectors. For instance, it accounts for 23% of global exports of fabricated metals and for 18% of global imports of agricultural products.

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Chart 13:  China's Share of Global Goods and Services (%) 2000-2017

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Source: McKinsey Global Institute analysis

 

Chinese production accounts for up to 35% of global manufacturing output and Chinese demand accounts for 10% of global consumption, second only to the United States. China's global flows of goods and services are significant. China became the world's largest exporter of goods in 2009, and the largest trading nation in goods in 2013. China exported goods worth $2.2trn in goods in 2017, making it the world's largest exporter. The Chinese economy also serves as the largest export destination of thirty-three (33) countries and the largest source of imports for sixty-five countries (65) countries (see Chart 13).

 

Chart 14: Outbound Tourism Spending by Tourist Origin, 2017 ($' bn)

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Source: World Travel and Tourism Council; Hong Kong Census and Statistics, MOTC (tourism bureau), Taiwan; Macao tourism data; McKinsey Global Institute analysis

 

China is already the largest source of outbound tourists in the world, Chinese tourists made more than 140m trips and spend $265bn while US tourist spends $168bn on foreign travel. Spending by Chinese tourists as a share of worldwide tourism spending has soared from 6 to 22% in just ten years and is forecast to reach about 30% by 2028, equal to spending by European tourists and just short of spending by tourists from North America and the rest of Asia combined (see Chart 14).


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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020

 

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