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India’s World – Slowdown of the Chinese Economy

Summary:

After 3 decades of near double digit growth China has transformed itself from predominantly rural and poor society to one of the world’s 3 largest trading nations. It has a transportation system which rivals at the developed countries and its population is increasingly middle class and urban. Rapid economic growth has resulted in nearly four trillion dollars in foreign exchange much of it invested in US territory securities.

However china’s growth now seems to be slowing down with significant implications for the world. It is estimated that a 2% decline in China’s growth would lead to about 0.3% decline in Global GDP per year. Economists say that considering China is also a key market besides being the workshop of the world the impact of the slowdown on global GDP could be as high as 0.5% per year.

Economists also point out that this phase is an inevitable one in the transition period for such countries. It is a part of the rebalancing.

China’s growth was largely driven by heavy investments in public infrastructure and other related areas. It was very much necessary for a strong manufacturing base.

People blame the slump largely to the slowdown in the housing sector in china. Housing sector fell by 14% in 2014 in China. Housing sector contributes to about 16% of the GDP and is the most important sector in China.

Global economic slowdown accelerated the urgency to restructure the Chinese economy.

Policymakers also are concerned about the potential onset of a deflationary cycle, aggravated by plummeting energy prices, industrial overcapacity and sluggish demand.

Over production of the steel has also been one of the reasons for the slowdown.

Economy is very weak and it’s unlikely that the corporate sector will take this credit and invest in new projects, so containing financial risk and stabilizing growth is the trend for this year.

And while the government has spun the downturn as a good thing, as it deliberately shifts from an unsustainable, export-led boom to relying on demand at home to fuel economic growth, people across the country are feeling the heat. And while the downturn is, on one level, intentional, policy-makers face a tough challenge in engineering a slowdown while maintaining enough control over the financial system to prevent a crash.

Coal and copper prices are down owing to lack of demand; strikes and protests are becoming increasingly common. The prospect of weaker demand from China has also been a key factor behind plunging global oil prices.

Over investment was a result of credit explosion after the global financial crisis.

China’s slowdown is being led by a decline in spending on infrastructure and housing. However, the earnings show weakness in sales of consumer goods, which was expected to be a stronger part of the economy.

India has a trade deficit of over 4billion with China and it is increasing. Exports from China to India have grown up.

China’s economic slowdown would impact different regions of the world in different ways depending on their exposure. In countries dependent on commodity exports, like Australia, Brazil, Canada, and Indonesia, the slowdown could have a negative impact on GDP. The inevitable fall in commodity prices could be beneficial, however, for other countries that consume the commodities, such as the United States.