The recent data sets emerging from China for the April-June quarter have raised concerns among observers worldwide. Foreign investors pulled out a record $15 billion on a net basis, leading stock exchanges to halt the release of data on foreign investment flows. This trend further confirms fears of a slowdown in the Chinese economy, which is a critical engine for the world economy. The implications of this slowdown are far-reaching, including effects on countries like India.
The International Monetary Fund has also confirmed the slowdown in the Chinese economy. In a recent report, the IMF projected that China’s economic growth, which was 5.2% in 2023, will slow to 5% in 2024 and further decline to 3.3% by 2029. The country is facing challenges such as stagnating consumption, a real estate downturn, high government debt, decelerating productivity, and an ageing population. Externally, Chinese goods and services are facing barriers in key markets like the US and Europe.
One of the sectors hit hard by the Chinese economic slowdown is the steel industry. China is the world’s largest steel manufacturer, with a significant annual manufacturing capacity. However, steel prices have plummeted to multi-year lows, leading to losses for many mills. This has resulted in excess inventory and concerns about Chinese steel dumping in global markets, including the Asia-Pacific region. The repercussions of this turmoil have already impacted Indian shores, with domestic steel prices falling to three-year lows.
The Indian steel industry, on the other hand, has been experiencing robust growth in recent quarters. Government initiatives like front-loading capital expenditure and production-linked incentives for specialty steel have spurred investments and consumption. However, the slowdown in China could lead to increased imports of subsidised Chinese steel and manufactured goods, posing a threat to Indian manufacturers.
India already has a significant trade deficit with China, and the slowdown in the Chinese economy could exacerbate this imbalance. If Beijing implements a stimulus programme to boost household consumption, it could include measures like inexpensive loans and subsidies for domestic manufacturers, further impacting Indian businesses. In this context, the Economic Survey’s suggestion to welcome higher Chinese foreign direct investment (FDI) warrants a reevaluation, considering both economic opportunities and security concerns.
In conclusion, the slowdown in the Chinese economy has wide-ranging implications for India and other countries. It is essential for policymakers to adopt a nuanced approach in dealing with Chinese FDI and leverage opportunities to address border disputes and economic challenges. By understanding the complexities of the situation and crafting pragmatic policies, countries can navigate the changing economic landscape and mitigate potential risks.