The Hindu Editorial Analysis- 2nd September 2023 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

China’s economic slowdown, its ripple effect

Why in the news?

• China's National Bureau of Statistics recently announced that the country's GDP growth fell to 4.9 percent in the third quarter.
• There are fears that a slowing Chinese economy would wreak havoc on the global recovery, as well as regional economies like India.

What are the reasons for the growth slowdown?

• Base Effect: Following the Covid-19 pandemic, China did a good job of recovering its economy. As a result, the lower growth rate is due to the reference point of greater growth rates in the prior quarter.
• China is at a 'mature' stage of economic development, which means that an economy that has experienced double-digit growth for two decades is expected to slow.
• The base effect refers to the impact that selecting a basis of comparison or reference has on the outcome of a data point comparison.
• Fuel/Power Crisis: Provincial governments were forced to cut power supplies due to a spike in coal prices and the resulting electricity shortfall.
• China's fuel/power problem is still affecting manufacturers, and units in the country's industrial heartland in the southeast have been forced to reduce output.
• Turmoil in the Real Estate Sector: The Real Estate Sector, which contributes to nearly a quarter of China's GDP, is starting to show indications of slowing.
• The Evergrande debacle is mostly responsible for the current slump.
• Evergrande Group is a Chinese real estate behemoth that is battling to avoid defaulting on billions of dollars in bond payments.

What is the Global Economic Impact?

• Impending Global Economic Recovery: China's containment of the pandemic and resumption of its industries have been critical in the post-pandemic global economic recovery.
• The Chinese economy's exposure to systemic risks may result in the global post-pandemic economic recovery losing momentum.
• The impact of the trade war between the United States and China has resulted in a slowdown in Chinese exports, resulting in losses for nations (particularly in South Asia) who rely on China for 'Supply Value Chain' components and other finished goods.

What is the impact on India?

• Imports: In the first nine months of 2021, India's bilateral trade with China increased by about 50%.
• India also relies heavily on Chinese imports, such as smartphones and vehicle components, telecommunications equipment, active pharmaceutical ingredients, and other chemicals.
• As a result, a slowing Indian economy will affect the country's consumer market and infrastructure development.
• Exports: India's brisk iron ore exports, much of which is destined for China, could be harmed if China's twin crises result in a prolonged downturn in the Chinese real estate market.
• Investments: An investment drain from India could be triggered by a slowing Chinese economy. India has the potential to become the next global manufacturing hub if economic reforms are expedited.

Way forward

• Apart from economic changes, India needs todiversify its imports from China, improve export competitiveness, and integrate into global supply chains.