The relationship between China and the world is now changing. A new exposure index from the McKinsey Global Institute (MGI) shows that the world’s relative exposure to China has increased, while China’s exposure to the world has decreased.
Changing Exposure Between China and the World
From 2000 to 2017, the world’s exposure to China increased across all three dimensions, while China’s exposure decreased. The world’s total exposure index rose from 0.4 in 2000 to 1.2 in 2017, while China’s exposure to the world peaked at 0.9 in 2007 and fell to 0.6 in 2017.
China’s Integration into Technology Value Chains
China is a global force in the global digital economy and artificial intelligence technologies. In many types of technology, it is already the largest consumer (for example, China accounted for 40% of global mobile phone sales in 2017, 64% of electric vehicle sales, and 46% of semiconductor consumption).
China’s Rapidly Expanding Consumer Market
China’s rapidly expanding consumer market – confident, increasingly wealthy, sophisticated, and ready to experiment – provides a strong link between China and the world.
By 2030, 58% of Chinese households are likely to be in the wealthiest or higher category, exceeding South Korea’s current share of 55%.
Chinese consumer markets are highly integrated with the world:
Across ten major consumer categories, the average penetration of multinational companies was 40% in 2017, compared to only 26% in the United States.
Two trends present significant business opportunities:
- Chinese consumers demand more and better choices: As incomes rise, consumers want more options
- An increasing number of Chinese are going abroad and spending more: China’s growing flows of people present expanding business opportunities for companies in destination countries
Potential Value at Risk
Simulation results indicate that more or less engagement between China and the world in five areas could drive economic value for the world ranging from $22 to $37 trillion by 2040.
Five Options for More or Less Engagement:
- Growth as an import destination: China developing itself as a major import destination
- Services liberalization: Liberalizing China’s services sector
- Financial market globalization: Globalizing and modernizing China’s financial system
- Cooperation in global public goods: Increasing China’s contribution to solving global challenges
- Technology and innovation flows: Increasing global flows of technology
Recommendations for Companies:
- Assess short and long-term exposure: Understand the level of exposure to China-world relationship
- Determine investment position and value chain: Define China strategy in terms of investment commitment
- Develop operational excellence: Ability to manage risks and uncertainty
- Adopt a survival mindset: Maintain healthy balance sheet and ensure access to financing