Why is China's economy slowing? While throwing light upon various reasons, examine the effect of China's slowdown on world economy and India.
China has been the world’s fastest growing economy in the last three decades.
But since last few years, China’s economy has been under stress and it is experiencing contraction and instability. China’s instability is threatening to push the world economy into another prolonged recession.
The main reason behind the China’s slowdown is the Communist Party’s decision to diversify the economy from public sector infrastructure and manufacturing to consumption and from cheap exports to developing large domestic market. The efforts of China’s scholars have been directed to change the working style of the county’s financial system and to make it more closely aligned to the way Western banks and economies function.
The main issues before China are:
- Excessive debt
- Demographic issues
- Currency devaluation
- Environmental woes
Any instability in China will create risk for the world economy. The impact will be more on countries that have greater trade ties with China.
The biggest concern is for Asian countries, Australia, Brazil, Canada, Chile and Peru as they depend on demand from China for vital commodities for industry.
For India, China accounts for approximately one-tenth of India’s merchandise trade, and most of it comes from imports of goods by India. Given the size of imports, any sudden depreciation of yuan would impact the Indian trade negatively. Indian exports to China are less diverse and low size. Low demand from China will reduce Indian exports. Thus, India must recognise the global economic scenario from China’s slowdown and take steps to increase domestic growth. At the same time, India should also explore the opportunities from Chinese slowdown and attains China’s centre stage position.