The world has become more exposed to China, but not the other way around

The world has become more economically exposed to China at a time when the Asian giant is increasingly relying on its own consumers to stimulate growth, according to a report released in July by consulting firm McKinsey and Company.

McKinsey's findings come as China grapples with a one-year tariff war with the United States, which has spread to areas such as technology and security. Economists have generally predicted that the Chinese economy – instead of the US – would be more affected by high tariffs, in part because of the relatively stronger dependence of the Asian country on exports.

But McKinsey's report revealed that consumption had contributed to more than 60% of China's growth in 11 quarters out of 16 – from January 2015 to December 2018.

This means that the Chinese economy has reduced its reliance on trade as a source of growth. In fact, the study found that China's net trade – the value of total exports minus imports – had "contributed negatively" to growth last year.

"I think that's one of the things they're trying to do: build a stronger, more diverse economy," Tonon said Monday Tonin, president of McKinsey, in "Squawk Box."

The consulting firm has studied how China and the world are linked by trade, capital and technology. He found that the growing importance of Chinese consumers to support growth meant that the country's manufacturers were selling more to domestic consumers and less to the world.

As a result, China exported only 9% of its production in 2017, up from 17% in 2007, according to the McKinsey study. Research shows that China has become more autonomous and less exposed to the rest of the world.

"The relative exposure of China to the world, in relative terms, has declined because the main driver of its economic growth is no longer trade or investment, but domestic consumption," he said. said the consulting firm in the report. "The decrease in China's exposure also reflects the fact that the economy is still relatively closed compared to developed economies."

On the other hand, the rest of the world has become more dependent on China, the report said. Countries are trading more goods with China or are receiving more investment from Beijing, McKinsey said.

The consulting firm has identified three groups of countries most exposed to China:

• Asian economies such as South Korea, Singapore, Malaysia, the Philippines and Vietnam. These countries are closely related to China in global supply chains.
• Resource-rich countries such as Australia, Chile, Costa Rica, Ghana, and South Africa export to China.
• Emerging markets such as Egypt and Pakistan, which are heavily exposed to Chinese investments.

"Sectors and countries more or less exposed to the Chinese economy could be more or less vulnerable to changing relations between China and the world," McKinsey said. "The increasing exposure of the rest of the world to China reflects the growing importance of China as a market, supplier and provider of capital."