Will China's economic slowdown impact India?

Hit by a prolonged trade war with the USA, China’s economy logged a 29-year low economic growth of 6.1% in 2019, prompting many to draw a comparison between the globe’s second-largest economy and India, which has also been slowing down and is estimated to grow at only 5% this financial year.

Can there be a comparison between the Indian economy and the Chinese economy, which is nearly five times larger than that of India’s and whose GDP per capita at around $10,000 is about four times bigger than that of India’s?

“Yes”, said N R Bhanumurthy, a senior professor at National Institute of Public Finance and Policy to DH, as the trade dependence of the two large market economies are high and uncertain global scenario has hit their investment.

Also read — China's economy slumps to 6.1 per cent in 2019; lowest in 29 years

Often referred to as the “world’s factory,” given its huge manufacturing and export base, China’s trade surplus with the USA shrunk in 2019 after a spate tariff was imposed on Chinese goods by Washington.

But, a silver lining on the dark cloud of the slowing economy was that China’s per capita consumer spending increased 5.5% year-on-year in 2019.

India’s household spending, in contrast, has shrunk to a four-decade low of Rs 1,446 in the year gone by, from Rs 1,501 in 2011-12. The estimate is that it is going to slow down further in 2019-20.

China’s slowdown has the potential to impact the world’s economic growth in a big way. With a 15.5% share in the global economy, China’s staggering demand for commodities can upset the countries dependent on commodity exports.

For India, however, the impact of China’s slowdown, will not be felt much, as India is by and large a domestically driven economy, according to Madan Sabnavis, chief economist of CARE Ratings.

Official data suggests that China’s share in India’s global import is a little over 16%, while the share of US, Japan, Korea in India’s imports is above 20%.

But Bhanumurthy says that one common thread between India and China seems to be the problem in their banking sector.

China has one of the world’s least regulated shadow banking and many economists have forecast that the next financial crisis could emanate from there. India too has a similar problem.