
“We are moving away from a U.S. – or Europe-led world to a world led by China,” writes Stephen King, Chief Global Economist at HSBC in a report released on Wednesday.

HSBC’s Emerging Market Index for the last quarter of 2012 tells investors to think of the global economy in terms of “two separate narratives.” The first is the “old world” consisting of the U.S. and Europe, which continue to experience an ongoing deleveraging. The second is the “new world” consisting of the “structurally dynamic” emerging markets in general, but China in particular.

In fact, HSBC projects that “China will make its biggest-ever contribution to global growth in 2014.”

Part of this is attributable to a slight improvement in China’s economy, which HSBC expects will grow by 8.6% in 2013, up from 7.8% in 2012. Although this is more robust than the 5.4% growth rate HSBC expects from the emerging markets as a whole, it is still a slower rate of growth than China experienced in the pre-financial crisis era.

Still the slower rate of growth is not as consequential as one might expect, at least in terms of China’s impact on the world economy. This is because the Chinese economy is much larger than it was when it was growing by double digit growth rates. “As a result,” King writes, “although its own growth rate may have slowed, its contribution to global growth is on the rise.”

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King illustrates this trend by pointing to the increase many countries have experienced, in terms of the percentage of their GDP that comes from their exports to China. This is especially true for countries located near China and, to a slightly lesser extent, commodity producing economies. For example, whereas South Korea’s exports to China amounted to just 3.5% of GDP in 2000, 12% of Seoul’s GDP came from its exports to Beijing in 2012.

It was hardly alone. In fact, a HSBC report from November of last year noted that every country in Asia except for India had seen its export exposure to China—exports to China as a percentage of a country’s total exports—increase between 2006 and 2011. The increase was especially striking in Australia, given its location and commodity production. According to Saul Eslake, chief economist at Bank of America’s Merrill Lynch division in Melbourne, Australia ships about 28% of its exports to China and Beijing indirectly sets the price that other countries pay for another 30% of Australia’s exports.

HSBC also singled out Malaysia and Singapore as other Asian nations whose export exposure to China has grown in recent years. Not surprisingly, non-Asian countries that have seen the largest increase in their exposure to exports to China are typically commodity producers, the report said, explicitly listing Chile, Kazakhstan, Saudi Arabia, and Angola. Angola is a particularly interesting case. With a GDP of U.S. $101 billion in 2011, Angola has become China’s fourteenth most important source of imports, the report says, ahead of countries like France, Canada, Italy, the UK, and even India, which borders on China and boasts an economy over 18 times as large (U.S.$1.85 trillion) as Angola’s. In light of this, HSBC concludes that, “the lack of trade between India and China must count as one of the great missed opportunities of recent years.”


But if India’s paucity of trade with China makes it an outlier in Asia, it would be quite at home in the “old world” nations in North America and Europe.

“The ‘old world’ has yet to catch the China express,” HBSC writes. Indeed, U.S. exports to China are only 0.7% of Washington’s GDP, with Canada, France, and Italy roughly equivalent. On the other hand, the U.K.’s exports to China are even lower, making up just 0.4% of London’s gross output. Germany’s far better than other members of the EU in this (and most other) regards, with about half of EU exports to China coming from Germany, according to the European Council on Foreign Relations (ECFR). The same ECFR report, published in May of last year, estimated that just under 7% of German exports go to China, making it Germany’s third largest export market after the EU and the U.S.

Still HSBC cautioned against putting too much stock into this, noting that: “Germany’s heightened trade relationship with China has been absolutely swamped by an even bigger increase in its dependency on the rest of Europe.”

Thus is the reality of a two world economy.

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Zachary Keck is assistant editor of The Diplomat. He is on Twitter: @ZacharyKeck.