China is the world’s factory – but less integrated into the global economy than the US and Japan

François Chimits

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China is the world’s factory – but less integrated into the global economy than the US and Japan

The new MERICS China Internationalization Index (MCII) shows that China is still significantly less integrated into the global economy than the US and even Japan. Despite two decades of fast increasing economic exchanges with other countries, China's MCII Internationalization score of 0.3 in 2020 was only half the US score of 0.6 and a third lower than Japan's score of 0.4. This seemingly startling difference reflects the fact that China's integration into the global economy has been largely driven by real economic activity – tangible actions such as trade, foreign direct investment, the movement of labor, and the exchange of ideas – and less so by the financial economy and its vast but intangible capital markets and related services.

The MCII shows how much more integrated China's real economy is with the global economy than its financial economy. This discrepancy between China's strength in the "visible" economy and its relative weakness in the "invisible" one suggests why China's integration into the world economy is often a contentious issue.

Perceptions of China's global economic status vary widely, ranging from predictions of eventual dominance to assertions of inevitable decline – both within China and abroad. The unprecedented speed of China's rise from a developing economy to a global powerhouse and the complexity of defining and measuring economic integration only complicate balanced analysis further.