Growth in the world’s second-biggest economy ‘China’ cooled last year to its lowest level in almost three decades, according to government data. The growth of gross domestic product (GDP) in China has slowed to 6.6% in 2018. China’s Dec 2018 exports unexpectedly fell 4.4% from a year earlier, with demand in most of its major markets weakening. Imports also saw a shock drop, falling 7.6% — the biggest decline since July 2016.

 Softening demand in China is being felt around the world, with slowing sales of goods from iPhones to automobiles, prompting warnings from the likes of Apple and Jaguar Land Rover. The Chinese slowdown has significant impacts on Indian economy too.

Negatives:

• Reduced Exports from India:
• Chinese industry is closely integrated into international supply chains. Half of all the world’s steel, copper, coal and cement goes to China. So if it isn’t buying, prices are likely to fall. India is a chief supplier of raw materials.

• Vulnerabilities due to integrated economy:
• The scale of integration of global economies in so high, that an issue in one can have repercussions across global economies. A case in point is the devaluation of Yuan in China (2016) led to stock-market crashes across global economies.

• Falling commodity prices:
• The effect of China’s slowing economy on commodity prices, finding that a 1% reduction in China’s growth lowers the price of coal, metals and oil and gas. This decline in prices has become an indirect risk for India as falling commodity prices pose a risk to significant investments made by firms in metals, mining and oil exploration sectors.

• Unfair trade practices:
• If Yuan weakens, it makes imports from China cheaper; excess capacities in China could lead to dumping of products. This could hurt Indian companies. India’s exports of raw material to China could suffer

Positives:

• Minimal impact:
• China accounts for approximately one-tenth of India’s merchandise trade. It has the biggest share in India’s imports, at more than 16%. It is also the fourth largest export market for the country, with a 4.39% share.

• Manufacturing hub:
• Increasing labour costs, ageing workforce in China gives an opportunity to India further deepen its position into global supply chains.
• China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.
• India could gain from Chinese help in infrastructure.

• Services unaffected:
• Unlike merchandise trade, Chinese presence in India’s $235 billion worth services trade is minimal.

Conclusion:

India is fortunate in that it is less vulnerable to economic shocks emanating from China, but it is not entirely ring-fenced either. India should cushion itself to reduce the negative impact of a Chinese slowdown. At the same time, it should also explore the positive side of a Chinese slowdown.