Does China matter globally?
- Does China matter globally? China is the second largest economy in the world. That is a largely meaningless fact. A large, isolated economy is not important to other economies (because it is isolated). China's integration determines its economic importance, not its size.
- China's integration has increased. Chinese tourism and Chinese conspicuous consumption are symptoms of an integrating economy. However, China's growth drivers in 2017 are more insular. Whether China grows at 6% or at 7% in 2017 (UBS forecasts 6.4%) makes little difference to the rest of the world. China's growth in 2017 is mainly domestic growth. Infrastructure spending is a key variable. This is not an import- intensive form of growth.
- Will China add to American and European inflation pressures? Not really. China's influence on global inflation this century was to marginally raise global prices. The inflation impact of China's commodity demand outweighed the disinflation impact of China's export supply. China's export value added is around 10% of China's GDP. China's GDP is around 16% of the world economy. A 5% change in China's costs would add 10% x 16% x 5% to global inflation. That equates to 0.08%. US and European inflation will increase, but China is not the cause.