Table of Contents
RECENT DEVELOPMENT
- China’s economy grew 6.6% in 2018, its slowest pace in almost 30 years, confirming a slowdown in the world’s second largest economy that could threaten global growth.
- After years of breakneck expansion, the world’s second largest economy is losing steam
CHINESE ECONOMY
- No Western country has matched China’s 10% percent average annual GDP growth rate over a period of 33 years, from 1978 to 2011. China’s East Coast cities are close to U.S. per capita GDP.
- The rest of the country will take another 20 years to catch up. The average income in urban areas is twice as large as rural regions. China will reach 80% urbanization by 2030.
THE MIRACLE OF CHINA
- China has lifted 740 million people in rural areas out of poverty from 1978 to 2017, roughly 19 million each year (According to Chinese Official Data)
- The country aims to further lift 10 million people out of poverty this year and eradicate poverty by 2020
- In China, those who have an annual income lower than 2,300 yuan (335 U.S. dollars) are considered to be living below the national poverty line.
NOTES
- `Tendulkar poverty line’ in India
- Which categorised people earning less than Rs. 33 a day as poor
- Annual 12 thousand rupees
- (The Tendulkar committee stipulated a benchmark daily per capita expenditure of RS 27 and RS 33 in rural and urban areas, respectively, and arrived at a cut-off of about 22% of the population below poverty line.)
THE CHINESE ECONOMY STATISTICS
- The People’s Republic of China is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity.
- The country has an estimated $23 trillion worth of natural resources, 90% of which are coal and rare earth metals. China also has the world’s largest total banking sector assets of $39.9 trillion (252 trillion CNY) with $26.54 trillion in total deposits.
CHINA’S GROWTH IS SLOWING DOWN
- China, the world’s second-largest economy, has reported that its exports for December 2018 fell by 4.4%, the sharpest fall in two years amidst rising trade tensions with the United States and fears of a global economic slowdown.
- Further, China’s trade surplus with the U.S. has increased to $323 billion, its highest level since 2016 and up 17% from a year ago. This is likely to put added pressure on Chinese exports to the U.S.
BAD PERFORMANCE
- Besides, China’s factory activity contracted to a two-year low by the end of December 2018 while car sales in 2018 dropped for the first time since 1990, pointing to faltering demand from Chinese consumers.
- There are increasing fears that the Chinese government may further drop its growth target to 6% in 2019, from 6.5% in 2018.
- Given its implications for global growth, markets across the world have naturally been worried about the fate of the Chinese economy.
NOTES
- China’s stock market, in particular, was the worst-performing among major economies in the year 2018.
- Apple, Jaguar Land Rover and other companies have warned of weak earnings due to a slowdown in their sales in China.
- Responding to fears of a serious slowdown in the economy, the People’s Bank of China on 16th January, 2019 injected cash worth $83 billion into the economy through open market operations in order to boost bank lending and overall economic growth. It is believed that the Chinese government may be prepping for a stimulus worth trillions of yuans to step up spending in the economy.
REASONS OF SLOWDOWN
- Decline in Exports
- Failure of the Structural adjustment
- Unfavourable Demographic pattern
- Fears of rising debt bubble
CHINESE RESPONSE
- Interest Rate cuts-: PBoC slashed interest rates deeply; it relaxed the reserve requirements and cut interest rates five times since November last year.
- People’s Bank of China (PBoC) reduced the share of assets that commercial banks must hold as reserves. Doing so gives institutions more leeway for lending, which is particularly beneficial to real estate and industry.
- Currency Devaluation-: PBoC also devalued Yuan multiple times from August 2015 to January 2016 to boost the exports.
IMPACT ON INDIAN ECONOMY
- Ever since the economic growth of China – India’s largest trading partner in goods – started slowing down,concerns have been raised over its possible impact on the Indian economy
- Total India exports to China in 2017-18 stood at $13.33 billion lower than $14.82 in 2013-14.
POSITIVE IMPACT
- Low Commodity Prices- The lower commodity prices could work to India’s advantage as it seeks to revive its own manufacturing sector and attract foreign companies to ‘make in India’.
- Deficit and inflation management- Oil prices were already taking a beating, with global slowdown and a possible US-Iran deal, China only nudged the prices lower. For India, low oil prices helps in controlling its deficit and keeps inflation under check.
- Investment- India’s big push for infrastructure development perhaps could get a boost from cheaper Chinese funds and resources. The development of India’s high-speed rail network, renewable energy sector, smart cities and more importantly, the manufacturing sector, could become more feasible in the wake of reduced possibilities and opportunities for companies in China.
- Indian stocks, as a result, are reasonably valued despite their strong run, and could find it easier to attract foreign institutional investor (FII) money.
INDIA STILL THRIVES
- The World Bank expects India to post 7.3% annual growth this year and 7.5% over the next two years.
- India’s middle class buying more is expected to help boost growth in the country, and despite a major political event coming this year in the form of elections, that steady growth is expected to continue.
WhatsApp