IMPACT OF CHINESE SLOWDOWN

ON INDIA AND THE WORLD

Macroeconomics

Second Largest Economy

The law of large numbers: Bigger an economy gets, the harder it is to keep growing at a fast clip. 

Average growth rate for last 3 decades: 10%

Indications of slowdown:• swelling of trade volume by

7%,• slowing down in bank lending,• shrinking manufacturing

sector• depleting foreign exchanges.

Global Growth Rate: 2%

Middle income trap:China is also restructuring its economy for domestic consumption. Hence, the overall slowdown might be slightly fuelled by this and should not be a cause for concern.

Xi Jinping, said it is the “new normal”: • less emphasis on

growth• faster structural

reform.Slowdown Factors:• Stock Market• Debt Crisis

• Shift in the Economy• Demographics• Impact (India and Global)

• Country's progress often depends on it's partner nations or some dominant economies.

Reasons for Slowdown of an Economy

• China being a manufacturing nation largely depends on it's customer nations

• Clampdown on government corruption such as gift giving played a significant role in slowing economic growth because of impaired investor confidence

•  Bribery probe for infant formula companies equally aggravated China economic downshift.

• Disposable income of urban households has dropped to 8.9% and retail sales value growth decelerating to 11.7% from 12.1%

•  Structural development has slowed down 

• Government is not willing to inject more money into the economy.

Total debt has climbed to about 250% of GDP, up 100 percentage points since 2008.

This debt allowed China to power its economy through the global financial crisis but also saddled it with a heavy repayment burden.

Much of the credit flowed to property developers. China’s inventory of unsold homes sits at a record high.

Chinese officials attempted to inflate the real estate market but that did not work. They then nurtured the equity markets to drive consumer demand. This worked for some time but then became unmanageable.

Steel Crisis

SHIFT OF ECONOMY AND DEBT CRISIS

Falls of up to 8% a day and lost trillions of pounds worth of value.Various bans on share sales were put in placeThe People's Bank of China cut both reserve requirements and interest rates, and pumped extra cash into the markets and that overinflated bubble busted again.

REASON: Information indicating that the Chinese manufacturing sector has fallen for a 10th consecutive month and as the Chinese Government to devalue the currency, indicating weakness in the Chinese economy triggered fear among investors and prompted sell-offs. 

STOCK MARKET CRASH

China is now such a big force in the global economy that it would inevitably affect the rest of the world. It is the second largest economy and the second largest importer of both goods and commercial services.

Commodity prices

 Increase in risks to overall global growth: • China would not confront its

slowdown with growth-supporting policies;

• commodity prices would slide further;

• the US dollar would continue to rise;

• companies would suffer from higher debts.

SLOWDOWN: IMPACT

Slowdown one of the big drivers of massive fall in oil prices

THE SUFFERERSWays in which a China slowdown will substantially impact regional economic growth:A fading export marketA pullback in foreign direct investmentA trigger of financial-market instability

• Shipping companies• global technology• heavy

manufacturing• automotive sectors

The biggest concerns are for Asian economies, as well as Australia, Brazil, Canada, Chile and Peru which depend on demand from China for vital commodities for industry. 

In manufacturing, Hong Kong, Korea, Malaysia, Singapore and Taiwan are among those most exposed.

India’s Opportunities and Threats:• Demographics• Manufacturing• FDI

• Exports to China• Global Growth• Weaker Rupee

THANK YOU!!Cherry MalhotraAnkita SharmaArshpreet Kaur

Baljender SinghPriyanka BanerjeeAnjali Mehta