China sneezes, India catches cold; Dragon’s slowest march in 27 years is a real cause of worry

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Published: July 15, 2019 1:16:01 PM

The Chinese economy grew by just 6.2 per cent on-year in the quarter to June, with the rate of GDP growth slowing to the lowest in the last 27 years, ie, since the first quarter of 1992.

China, Economy, India, GDP growth, Imports, Exports, Trade, Trade war, Dispute, Investments, Off balance sheetIndia’s exports to China in the last three financial years have surged at around 25 per cent CAGR (Bloomberg image)

The Chinese economy grew by just 6.2 per cent on-year in the quarter to June, with the rate of GDP growth slowing to the lowest in the last 27 years, ie, since the first quarter of 1992. China’s Apr-Jun quarter GDP growth was slower than the previous quarter’s 6.4%. Steep decline in China’s growth is a result of the continued trade dispute with the US and alarming off-balance sheet borrowings by the local governments. Also, the businesses are held back from making big investments despite encouragement from the centre. Economists expected the GDP growth rate to be 6.3 per cent but it fell even below the expectations.

“There should be big volatility in China’s economy right now and the tax cuts probably aren’t having a big effect on sentiments,” said Ting Lu, Chief China Economist at Nomura International. “China had sufficient policy reserves to stabilize the economy in the second half, including efforts to boost infrastructure investment and additional tax cuts,” Mao Shengyong, a spokesperson at the National Bureau of Statistics, told The Wall Street Journal.

 

How China’s problems could become India’s troubles

China is a major trade partner of India. India’s exports to China in the last three financial years have surged at around 25 per cent CAGR. In 2016-17, India’s exports to China were worth $10.7 billion, which was 3.6 per cent of India’s total exports. Later, in 2017-18, India’s exports to China climbed 31 per cent to $13.3 billion. The proportion of exports to China also rose to 4.4 per cent of the total. Similarly, in 2018-19, India’s exports to China rose 25% on-year to $16.7 billion, hitting 5% of India’s total exports. These figures by the Department of Commerce show how China plays a vital role in India’s trade.

As far as imports are concerned, imports from China remained 15.9 per cent, 16.4 per cent and 13.7 per cent of India’s total imports in FY 2016-17, FY 2017-18 and FY 2018-19, respectively. It is also believed that the downfall of China may open some new windows for India as a new preferred location to expand businesses, but the tremor is likely to be felt by the entire Asian economy.

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