Context:

China’s National Bureau of Statistics has reported that third-quarter Gross Domestic Product (GDP) growth has slowed to 4.9%, hence, there are concerns that a slowing Chinese economy could impact the incipient global recovery and regional economies like India as well.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian, Economy, Foreign Trade)

Dimensions of the Article:

  1. Why is China’s Growth slowing down?
  2. Impact of this Chinese Economy slowdown

Why is China’s Growth slowing down?

  • China did well in reviving economic growth after the Covid-19 pandemic. Therefore, the reference point of higher levels of growth rate in the previous quarter is resulting in a lower growth rate.
  • China is going through a ‘mature’ stage of economic development i.e., an economy which has witnessed a double-digit growth for two decades is bound to face a slowdown.
  • A surge in coal prices and a resultant electricity shortage prompted provincial governments to cut power supplies. This fuel/power crisis in China continues to affect factories and units across the country’s industrial heartland in its south east have had to curtail output.
  • The Real Estate Sector which accounts for about a quarter of China’s GDP, is now beginning to show signs of perceptible slowdown. The reason for this slowdown can be primarily attributed to the Evergrande fiasco – wherein the real estate giant (Evergrande) in China is struggling to avoid defaulting on billions of dollars owed to bond holders.

Impact of this Chinese Economy slowdown

  • China’s control of pandemic and restarting its industries has played an instrumental role in the post-pandemic global economic recovery.
  • The Chinese economy falling into systemic risks could lead to overall loss of momentum to the global post-pandemic economic recovery.
  • US-China trade war, has resulted in slowdown in Chinese exports resulting in losses for the countries (especially South Asian Countries) that depend on China for ‘Supply Value Chain’ for producing components and other finished goods.

Impact on India

  • India depends majorly on imports from China including smartphones and automobile components, telecom equipment, active pharmaceutical ingredients, and other chemicals and India’s bilateral trade with China has grown nearly 50% in the first nine months of 2021. – Thus, slowing the Indian economy will have an impact on India’s consumer market and infrastructure development.
  • India’s buoyant iron ore exports, much of which is headed to China, could also see an impact if the twin crises in China triggers an extended slowdown in the Chinese real estate market.
  • Slowing Chinese economy can trigger an investment outflow from India. If India can expedite the economic reforms, it can become the next global manufacturing hub.

-Source: Business Standard

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