Deep Impact: China and the World Economy

Much of the debate about the impact of China on the international political economy arises from the many dimensions of the potential impact and the lack of historical precedent for such a large change. This paper provides some context for thinking about these issues by contrasting China’s recent expansion with the USA at the end of the last great wave of globalization, and reviewing recent quantitative modelling of China’s growth on other countries. It argues that China’s growth is good for the world economy with significant terms-of-trade gains being experienced in its trading partners, reductions in poverty and increases in living standards. Nevertheless it also suggests we should be cautious in predicting China’s future role in the world economy. It still commands only a fraction of the spending power of the USA and further growth will require China to embrace good institutions and continue the move to a more market-based economy.