Slide in China’s GDP growth and implications for India

Synopsis: Growth slow down in China can impact global economic recovery and India in particular.

Introduction

China’s third-quarter GDP growth slowed to 4.9% as industrial output rose way below expectations in September, according to data released by the country’s National Bureau of Statistics.

A slowing Chinese economy is worrying wrt trade and the overall loss of momentum to the global post-pandemic economic recovery. India too can be affected adversely.

What are the reasons behind economic slowdown in China?

Massive fuel crunch and worries of a systemic crisis in its real estate business precipitated by the Evergrande fiasco, and a souring of business sentiment amid the federal government’s crackdown on multiple Chinese sectors and marquee companies.

How China’s growth output is being affected?

Loss of Capital to sustain Growth: According to a Reuters report, businesses were less keen to invest in new projects amid the federal government’s crackdown on multiple Chinese sectors.

Power Crisis: The power shortage had a “certain impact” on normal production. Factories and units across the country had to curtail output due to surge in coal prices.

Real estate sector Crisis: The drop in fixed asset investment is being primarily attributed to a perceptible slowdown in real estate investments. In August, real estate major Evergrande warned of a default and subsequently missed payments to investors in its offshore US dollar-denominated debt.

Why the present situation may be of concern to India?

India could be impacted, given India’s deepening trade with China and its import dependence. For example,

Import dependence: India imports items such as smartphones and automobile components, telecom equipment, active pharmaceutical ingredients, and other chemicals mostly from China. India’s trade deficit with China increased to $46.55 billion in the first nine months of 2021, up from $29.9 billion in the year-ago period.

Increasing Bilateral trade: India’s total trade with China touched $90.38 billion during the January-September period, and is likely to cross $100 billion by the end of the year. According to India’s Commerce Ministry data, China was India’s top trading partner in the April-July period.