Politics

Will India Gain From China’s Economic Slowdown?

Investors and financial analysts around the world are becoming increasingly worried about the slowdown of China’s economy. The surprising move of the People’s Bank of China to devalue the yuan currency ignited concerns that led to a global market rout last month.

On Wednesday, the preliminary Caixin China Purchasing Managers’ Index (PMI) showed that the manufacturing activity in the dropped from 47.3 last month to 47% in September. A reading below 50 means businesses are weakening.

Policymakers in the United States are evaluating the risks associated with the slowing economic growth in China and other emerging markets, according to Federal Reserve Chairperson Janet Yellen. The current economic situation in China was one of the reasons behind the decision of the Fed not to raise interest rates last week.

Peak Coal China India

China economic slowdown: India sees opportunity

Aside from the United States, other countries are concern that China’s slowing economy could spill over and affect the global growth.

Amid all the concerns about the Chinese economy, India perceives the situation differently—an opportunity to gain competitive advantage.

Liu Xiaoxue, an associate research fellow at the Institute of Asia-Pacific Studies at the Chinese Academy of Social Sciences, noted that India’s Prime Minister Narendra Modi reassured bankers and tycoons earlier this month that the country’s economy could withstand a global economic turmoil including China’s weakening economy. Prime Minister Modi told them, “China’s loss is going to be India’s gain.”

Separately, Indian Finance Minister Arun Jaitley said China’s economic downturn is a “great opportunity” for India during a recent interview with BBC. Jaitley explained, “The world needs other engines to carry the growth process—an economy can grow at 8% to 9% like India that has viable shoulders to provide the support to the global economy.”

China’s pain is India’s gain: a zero-sum game mentality

According to Xiaoxue, India’s unrealistic optimism supported with” schadenfreude” (malicious pleasure taken in China’s misfortune) raised public debate in the Indian society and academia after the media statements of the country’s leaders.

Some people are optimistic that the Chinese stock market could drive foreign investors out of China into India. They also believe that the rising labor costs in China may encourage international companies to move their production line to India.

On the other hand, some market observers believe that India is still incapable of taking China’s position. They emphasized that China GDP and per capita income was five times more than India’s. The Chinese government’s foreign exchange reserve is ten times bigger than India’s reserve. Additionally, they pointed out that even if China’s growth rate declines to 5% annually, it can add an economy similar to the size of India to its GDP every three years.

Xiaoxue described the remarks of Indian Prime Minister Modi and Finance Minister Jaitley that China’s pain is India’s gain [whether exaggerated by media or not] as a “zero-sum game mentality.” According to him, such statement may cause “jitters between both countries.” He added that there were no signs that China and India are heading a full-scale competition.

China economic restructuring

China is currently restructuring its economy and implementing industrial upgrade, which resulted in the withdrawal of foreign funds, and contraction of its manufacturing industry.

The Chinese government believes that change is a bitter pill to swallow, but necessary to move upward to the global economic chain.

According to Xiaoxue, the market volatility, foreign investment withdrawals, and factory relocations are part of the economic restructuring process. China’s economy would decline then it goes back up again.

He said the “process would be a win-win instead of a lose-win for China and India.” He explained that both countries can benefit mutually because their economies are not of the same level. He pointed out that India desires the excess capacity of China.

India needs proper economic environment

Xiaoxue said “China’s pain is India’s gain” is just a political slogan to cheer the Indian people. He noted that Prime Minister Modi faced some challenges since assuming his position. According to him, the Prime Ministers land reform program is no longer in the spotlight, and his Swachh Bharat Abhiyan (Clean India Mission) is also struggling. India’s economic growth at 7% was below the 8% expectation last quarter.

He added that India should not focus its attention on China’s economy citing the reason that it has still many problems such as “weak work ethic, poor quality control and terrible enforcement of business contracts.” India’s economy is large, but its major competitors are Vietnam and the Philippines, not China.

“India should understand that without a proper environment to attract these crucial elements, its ambition to be a world economic engine is merely a dream,” said Xiaoxue.