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How India can take benefit of China's economic crisis.

Date: 19-12-2023
Subject: How India can take benefit of China's economic crisis
Defaults by Chinese borrowers have surged to a record high since the pandemic, with authorities blacklisting 8.54 million people from economic activities ranging from using toll roads to purchasing airline tickets and using payment applications, as per recent media reports. The number is up from 5.7 million defaulters in early 2020 and amounts to about 1% of working-age Chinese adults. After online payment platforms like Alipay and WeChat replaced cash as the most used payment method in China, many stores refused cash payments, and some defaulters said it had become difficult for them to even buy food. Record unemployment has worsened the situation.

Meanwhile, China's consumer prices fell the fastest in three years in November while factory-gate deflation deepened, indicating rising deflationary pressures as weak domestic demand casts doubt over the economic recovery. Xu Tianchen, senior economist at the Economist Intelligence Unit, said the data would be alarming for policymakers and cited three main factors behind it: falling global energy prices, the fading of the winter travel boom and a chronic supply glut. Early this month, rating age ..

China is struggling with grave portends for its economy which has been for long the toast of the world. China’s economy will slow next year, with annual growth falling to 4.5% from 5.2% this year despite a recent recovery spurred by investments in factories and construction and in demand for services, the World Bank said in a report last week.

While it was briefly seen to be emerging strongly out of the Zero-Covid policies, the hope was short lived. The ongoing real estate crisis has dampened the consumer spirit, huge debt is weighing down the economy, foreign investors are losing confidence and unemployment and deflation are dogging the world's second-largest economy. Add to that President Xi Jinping's crackdown on private business. While China is not heading towards a collapse, its miracle growth is now a thing of the past.

China's economic problems are short-term as well as structural. While China can come to grips with its short-term problems, the structural problems pose a big challenge. China's aging population which directly results in constricted labour supply as well as more welfare expenditure sticks out like a sore thumb. Its alienation from the US and the Western world at large threatens its huge export sector as the Western countries have started diversifying their supply chains.

Last month, in a report titled 'China Slows India Grows', S&P said it expects Asia-Pacific's growth engine to shift from China to South and Southeast Asia. Though India is still far away from achieving the economic miracle of China, the world now sees it as the replacement of China which has been driving the global growth for a long time while also being the factory of the world. Early this month, rating agency S&P Global Ratings forecast that India is poised to become the world's third- ..

China's decline comes at a time when the world is bullish on India. India has the chance to replace China but that would require consistent growth driven by manufacturing and exports. India's biggest advantage over China is its predominantly young population but low skills mar this potential. Skilling its youth, especially in new-age tech, will give India a major growth driver for decades.

"A paramount test will be whether India can become the next big global manufacturing hub, an immense opportunity. Developing a strong logistics framework will be key in transforming India from a services-dominated economy into a manufacturing-dominant one," S&P has said. Realizing the full potential of India's labour market will primarily hinge on the upskilling of workers and a rise in the engagement of women in the workforce, it said. "Success in these two areas will enable India to realiz ..

China has recorded its first-ever quarterly deficit in foreign direct investment (FDI), according to balance of payments data, underscoring capital outflow pressure and Beijing's challenge in wooing overseas companies in the wake of a "de-risking" move by Western governments. Direct investment liabilities - a broad measure of FDI that includes foreign companies' retained earnings in China - were a deficit of $11.8 billion during the July-September period, according to preliminary balance of paym ..

That's the first quarterly shortfall since China's foreign exchange regulator began compiling the data in 1998, which could be linked to the impact of "de-risking" by Western countries from China, as well as China's interest rate disadvantage. India can offer itself as an alternative to foreign investors by calibrating its policies.

Overall FDI into India may have declined but there are reasons to be sanguine with the country seeing interest in greenfield investments amid the first-ever decline posted by China. ET reported recently that the United Nations Conference on Trade and Development (UNCTAD) has told the finance ministry that India is among the top three in greenfield FDI announcements as per its findings. This suggests that India may be pulling in fresh global capacity expansion as part of supply chain diversificat ..

Walmart, the world's biggest retailer, is importing more goods to the US from India and reducing its reliance on China as it looks to cut costs and diversify its supply chain, Reuters has reported. The world's largest retailer shipped one quarter of its U.S. imports from India between January and August this year, according to bill of lading figures shared with Reuters by data firm Import Yeti. That compared with just 2% in 2018.

The news of China's economic fall may be highly exaggerated but the signs of India emerging to take China's place in the world are not. India must prepare itself to effect the big power shift in Asia.

 Source Name : Economic Times

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