China’s industry is intricately linked to global supply chains. China accounted for around 7% of world economic activity at the turn of the century. This year, that number is expected to be about 19%. 

The growth of the Chinese economy was at the point where it currently controls the global price of a wide range of goods. 

In the past 20 years, China has ramped up heavy industries. That’s why China consumes half of the world’s steel, copper, coal, and cement as raw materials.

The economy of China is better than the Indian economy. That’s why, China has the largest share of India’s imports, which is approximately 16% of total imports by India according to the fiscal year 2021. 

The Chinese economy is slowing down 

China’s National Bureau of Statistics recently announced that GDP growth fell to 4.9% in the third quarter. There are predictions that a slowing Chinese economy may influence the global recovery, as well as regional economies such as India. The ongoing China-US trade war, COVID-19 pandemic restrictions, and power shortage are also important factors in slowing down the Chinese economy.

Factors contributing to China’s Economic Slowdown

The Chinese economy is slowing down for have a variety of reasons, such as:

• China is at a mature stage of economic development, which means that an economy that has grown by double digits over the past two decades would inevitably slow.

• Fuel/Power Crisis: Provincial governments were required to reduce energy supplies due to a sharp rise in coal prices, which resulted in an electricity shortfall.

• Chinese manufacturers still face the fuel and power problem, and divisions in the country’s industrial heartland southeast have been pushed to decrease output.

• Turmoil in the Real Estate Sector: There is an indication of the slowing of the real estate sector, which contributes to nearly a quarter of China’s GDP.

• The Evergrande debacle is largely blamed for the current slump. Evergrande is a Group of Chinese real estate behemoths fighting to avoid defaulting on bond payments of billions of dollars.

• The real estate sector, driven by Evergrande, was the key driver of China’s economic recovery following the pandemic.

• The weakening of China’s property market and lower demand for new homes, on the other hand, had a negative influence on its cash flows.

• As a result, over three-quarters of the country’s household wealth is tied up in real estate.

Impact on Global Economy

Any failure at the world’s largest real estate corporation may have a significant impact on the whole economy and a cascade effect on global commodities and financial markets. The exposure of the Chinese economy to systemic harms may result in the multinational post-pandemic economic recovery losing momentum. China’s containment of the pandemic and resumption of its industries has been crucial in the global economic recovery following the pandemic. On the other hand, several experts believe that the threat to global financial markets is minor.

India’s Reaction

• India shares 2% of its total GDP with China, and the downfall or slowing of the Chinese economy will influence India’s GDP.
• The slowing Indian economy will influence the country’s customer and infrastructure progress.
• Exports:China generally imports around 70% of iron ore from India, which is more than enough, and it could be harmed if the Chinese real estate market has a prolonged downturn because of China’s twin crises.
• Investment: The Chinese economy becomes slow when investment from India is drained from the Chinese market. If economic reforms are accelerated, India can become the next manufacturing hub.
• Bank of Baroda chief economist Rupa Rage Nitsure said that the Chinese industrial downfall offers an opportunity for the Indian market to take back their lost export markets, and it opens the door for Indian companies.
• Chief Economist with the rating firm CRISIL, D.K.Joshi said that the slowing down of the Chinese economy led to lower commodity prices.

Commodity prices include buying, selling, or trading a raw product, such as oil, gold, or coffee.

It also includes agriculture and household products.

Reduction in commodity prices reduces the growth of household income, company profits and government revenues.

• DR. N. R.Bhanumurthy, First Vice-Chancellor of. B.R. Ambedkar School of Economics University, Bengaluru (BASE University). said that the slowing down of the Chinese economy seems to create problems in the banking sector of India and China.

Conclusion

The Chinese economy grew at its slowest rate in the last 24 years in 2014, at 7.5%. The decline of the world’s second-largest economy is a greater concern than the stock market. The Chinese stock market crisis and the reduced growth pace exacerbated the problems in China. According to the International Monetary Fund’s report, slower growth in China will also have substantial regional consequences, partly explaining the downward amendments to expansion in much of Asia. China is one of India’s top trading partners and the world’s second-largest economy. A slowdown in China’s economy is certain to damage India’s economy sooner or later.