Gauging China's Influence

• Author: Vivek Arora and Athanasios Vamvakidis
• Position: an Assistant Director in the IMF's Asia and Pacific Department, and A is a Deputy Division Chief in the IMF's Strategy, Policy, and Review Department.

CHINA’S economy has grown dramatically and rapidly since 1978, when it launched its “reform and opening-up” strategy. It is now the world’s second-largest economy, its biggest exporter, and an increasingly important investor. And to fuel its export engine, it imports significant quantities of raw materials and semifinished products from around the globe.

But there is little empirical analysis of how much China’s growth has affected other countries—whether nearby Asian nations, commodity-producing countries in Africa and Latin America, or major consumers of Chinese products.

To help remedy this, we have quantified the implications of China’s growth for the rest of the world and conclude that China’s expansion has had a positive impact on global growth that has increased over time in both size and reach. A few decades ago, China’s expansion influenced growth only in neighboring countries; it now affects growth all over the world. These findings confirm, or at least provide a quantitative basis for, a hunch that economists have had for years.

Unprecedented growth

The ramifications of China’s opening-up policy are well documented. Even so, the facts are astonishing. From relatively poor beginnings three decades ago, China’s economy is now second in size only to the United States. Real gross domestic product (GDP) has grown by about 10 percent annually, implying a doubling every seven to eight years. The resulting 16-fold increase in a major economy’s national income during a single generation is unprecedented.

That these improvements involve one-fifth of the world’s population highlights the vast human scale of the achievement. Several hundred million people have been lifted out of poverty, and living conditions have improved for many more people in a shorter period of time than ever before.

Tighter global linkages

China’s opening up has meant increasing linkages with the rest of the world, as reflected in its rising share in world trade, global markets for selected goods, and capital flows. China’s stronger linkages with the global economy have also led to a growing use of its currency abroad, as well as closer correlation of market sentiment in China and the rest of Asia and, more recently, the world. China’s share in world trade has increased nearly tenfold over the past three decades, to about 9 percent, while its share in world GDP has risen to 13 percent from less than 3 percent (purchasing-power-parity basis; see Chart 1).

Although...