There is a lot of confusion over China’s contribution to global growth. Because China is currently the largest component of global growth—i.e. its GDP growth rate times its share of global GDP exceeds that of any other country—many analysts conclude that China is also the biggest contributor to global growth.

But what does it mean to contribute to global growth? For many years the world was balanced between countries with excess demand relative to their production of goods and services and countries with deficient demand. The 2007-09 crisis seems to have ended the period of foolish overconsumption by the US and several countries in Europe, who jointly accounted for an outsized share of global consumption growth in the previous decade. When we consider that for the next several years the largest economies in the world, the US, Europe, China, Japan, and the UK, as well as many smaller ones, will be forced to recapitalise their ailing or insolvent banking systems, and that banking systems are always cleaned up directly or indirectly by transfers from the household sector, over the next several years we should not expect a major recovery of household consumption. Long-suffering households will have too little disposable income left over from the banking sector recapitalisation to engage in a consumption spree.

So what the world really needs is more demand. In that sense countries with excess demand, or at least demand growth relative to growth in production, contribute to global growth, while countries with deficient demand convert foreign demand into domestic growth. As an economy with deficient demand and by far the world’s largest trade surplus, China is not a major net contributor to growth outside its borders. It is a major growth booster mainly for commodity producers, but it is a greater drag on growth for manufacturers.

China is eager to remedy this. It has engaged in a massive investment boom, but concerns about capital misallocation make this unsustainable. It is eager to boost domestic household consumption, but this will require a slow and difficult transformation of the country’s growth model. Over the next few years if China can rebalance its economy, and reduce its trade surplus, it will contribute real growth and employment to the rest of the world. For now, however, it is hard to argue that the global economy depends too much on China’s economic growth.