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EDITORIAL ANALYSIS : A resilient India, but growth pangs for China

 

Source: The Hindu

 

  • Prelims: Current events of international importance(BRI, Regional forums, EEZ, PLA, Galwan valley etc
  • Mains GS Paper II: Bilateral, regional and global grouping involving India or affecting India’s interests, BRI and issues associated with it etc

 

ARTICLE HIGHLIGHTS

  • The Chinese government has disappointed observers with the projection of a growth target of around 5% in 2023, which is lower than that of last year (5(five point five)%) and even lower than the expected GDP growth for India in 2023 (6.1(six point one)% according to the IMF)

 

INSIGHTS ON THE ISSUE

Context

Why is China cautious about the growth target this year?

  • The Chinese government does not want to run the risk of undershooting its growth target again, as it happened in 2022.
  • Even if consumption is recovering, external demand remains weak.
    • It is hard to know whether private investment will indeed rise given the doubts about the role of the private sector in the Chinese economy
    • The increasingly cautious sentiment being expressed by foreign investors.
    • The real estate sector is still dragging down growth.
  • Tighter regulatory measures have been introduced to contain financial risks and achieve more social objectives such as a green economy, food security, etc.
    • It recognises that too high a growth is no longer possible nor desirable as it only aggravates financial imbalances.
  • Sustainable growth has become a key concept in China’s new economic narrative.

 

Job creation and foreign investment

  • Job security is one of the most important objectives of the sustainable growth narrative
  • Higher target for new jobs: 12 million), compared to what it was in the last past years (11 million, except for the even lower target in 2020 after the COVID-19 pandemic in China).
  • The revision of the employment target reflects the government’s concern about the job market, especially young workers (the unemployment rate reached 20% in spring 2022).
  • China’s recent charm offensive to retain foreign direct investment in China as it is an important source of job creation.

 

Benefits of Supply chain diversification for India:

  • It is not going to help China fulfill the employment objective as investors are looking at new pastures
  • India needs to create as many jobs as possible (at least 13 million a year, which is more than China’s target).
  • Foreign investors are beginning to contribute more substantially to job creation in India
  • India’s sheer size in terms of market size and labor force could pose challenges for China as it tries to hold on to foreign direct investment within the country.

 

The forces pushing foreign investors out of China are:

  • Containment by the United States at the highest end of the value chain, which is forcing bifurcation
  • higher wages at the lowest end
  • China’s push for self-reliance.

 

Way Forward

  • The 5% growth target is consistent with the current challenges that the Chinese economy faces as well as the government’s more diversified objectives beyond economic growth.
  • Creating more jobs is a quintessential part of China’s new sustainable growth narrative
    • But China is confronted with more competition than before, especially from India because of its market size and the large labor pool.
  • India and China may not be too different in size and population, growth prospects differ substantially.
  • India remains economically resilient: An acceleration of this pattern is to be expected in the next few years, especially if the reshuffling of the value chain continues, pushed by geopolitics and high costs in China.

 

QUESTION FOR PRACTICE

How will I2U2 (India, Israel, UAE and USA) grouping transform India’s Position in global politics ?(UPSC 2022) (200 WORDS, 10 MARKS)