China’s surprise slowdown is advantage India; how dragon’s unexpected export, import fall will help

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Published: September 9, 2019 4:41:19 PM

The Chinese economy witnessed an unexpected rocky trade in August with the exports dropping by 1 percent on-year, against the market expectation of a 2 per cent growth.

US-China, trade war, exports, imports, demand, India, import bill, commodities, steel, aluminium, bronze, copperWeakness in demand for commodities such as steel, aluminium in China is likely to bring down the commodities prices in the global market. (Bloomberg image)

The surprise fall in China’s exports last month, contrary to predictions, shows the extent of a global economic slowdown, but may spell some relief for India, which is grappling with its own slowing economy. The Chinese economy witnessed an unexpected rocky trade in August with the exports dropping by 1 percent on-year, against the market expectation of a 2 per cent growth. At the same time, its imports fell too, by 5.6% for the month. Amid the ongoing trade war with the US, the sales for many major commodities from China such as unwrought aluminium and its products, coal, coke and semi-coke, steel products, refined products, and rice fell up to 44 per cent, according to the General Administration of Customs, China.

 On the import side, since China is the largest importer of metals, a slowdown there show its impact at global levels. The declining demand for commodities in China and the global market is likely to bring down the prices of major commodities, which in turn would cut India’s import bill, say experts. As far as trade is concerned, India is not immune to the global slowdown. “The global slowdown has several channels of contagion. For India, export volumes moderated in spite of a modest real depreciation, showing that it is external demand that is the key determinant of export performance,” says RBI’s latest annual report.

However, economists believe that apart from maintaining the current account and the balance of payment, turbulent global factors add only a little worry to India. “Indian economy is mostly driven by domestic demand and the global demand has a minor role to play,” Madan Sabnavis, Chief Economist, Care Ratings, told Financial Express Online. He added that the weakness in demand for commodities such as steel, aluminium in China is likely to bring down the commodities prices in the global market and this can reduce India’s imports bill too. However, oil-driven imports form bulk of Indian purchases from overseas, and thus the relief on the overall import bill will be small. 

“China has cut its RRR by 50 basis points last week and has given hint for further reduction to boost the growth. Looking at the recent changes in the fundamentals, a further fall in the base metal prices will be capped,” Manoj Jain, Director-Commodities and Forex banking, India Nivesh, told Financial Express Online. As far as the Indian scenario is concerned, the import bill is already reduced due to slower domestic demand as automobile and other manufacturing sectors are highly stressed.

China and the US have agreed to hold the 13th round of China-US high-level economic and trade consultations in Washington in early October. Before that, the two sides have decided to maintain close communication this month, according to the Ministry of Commerce, China. The move has given hopes that the global slowdown will gradually improve. Meanwhile, Chinese exports to the US fell by 16 per cent and Australia by 17 per cent.

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