CHINA SLOW'S DOWN - DO WE NEED TO WORRY?

By Ruma Dubey

China posted the slowest quarterly growth for first quarter ended 31st March 2015 – it was the second lowest after 2001 at 7%, down from 7.3% in Q4.

China’s National Bureau of Statistics reported an all-round fall in – industrial production, fixed asset investment, retail sales, housing sale and exports were as such staggering down. This slow down comes in despite China taking steps over the past few months to boost the economy by increasing infra spend, cutting down electricity tariffs, bringing down costs for domestic companies and reducing interest rates twice. But as of now, nothing seems to be working, putting a question mark on China’s ability to meet it annual growth target of 7%.

But then we are just as the first quarter and China, given its past track record will not exactly rest on this news – it will take steps, push levers to accelerate growth. Like the RBI, the People’s Bank of China is waiting to see the effect of its rate cuts, waiting for it to percolate down to the people. It might wait for Q2 numbers before initiating another rate cut. The word on the street of Beijing is that recovery could happen only by second half and there could be more pain till then.

What does this mean? Is China slowing down or more importantly, can the world afford to have a slowing Chinese economy when the rest of the world is on the verge of recovery?  Analysts in China are of the opinion, not surprisingly, that this slowdown is just a ‘seasonal’ factor. Europe is China’s biggest market and when that entire region is sluggish, naturally, China is taking some hit. More importantly, a lot of systemic changes are being initiated in the Chinese economy, shifting from a purely export driven economy to spurring domestic demand through the Third Plenum like reforms in financial sector, insurance, housing, privatization of the banking sector. Thus it is shifting to a more market driven economy and this shift is causing this pain and slowdown. Seasonally too, Q1 is always slow for China, given the long holidays for the Chinese new year celebrations. Despite the jitters now, majority of the analysts are confident that Beijing will jump in to rescue the economy if it looks on the verge on a slump.

There are many who question the veracity of the Chinese economic data. With so much control over all information, doubts are raised time and again about the information itself being meted out. Transparency is a bad word in China and human resource simply means hands which produce goods. Despite all this, China continues to draw one and all like a magnet. Everyone worth their name in salt has set up shop in China or has outsourced manufacturing to China. Every single piece of data which comes out is dissected and debated and usually, makes it to the front page of every business newspaper around the world.  Is it the draw of its US$3.3 trillion forex reserve, the sheer panache with which it delivered the Beijing Olympics or its infrastructure wonders like Three Gorges Dam, the world's highest railway line to Lhasa, the Beijing-Shanghai high-speed rail link; the list is endless. Did you know that five of the world's top 10 contractors, in terms of revenue, are now Chinese?

Thus if we look at this logically, we cannot ignore China as it looms large over the globe today simply because it so humungous; towering like the Mt. Everest. Like mountaineers vying to climb the Everest, with unpredictability threatening at every step despite years of experience, China too is an enigma. No one, not even the best brains at Goldman or Moody’s or GE or Apple, are able to lay a finger on the exact working of its development model. Forming alliances with some of the most dangerous and authoritarian countries in the world, while signing the dotted lines with developed countries, one cannot really fathom what really lies beneath.

Coming to the basic question – can the world today cope with a slowdown in China? Well, it will hurt; there is no beating around the bush there. If the fastest growing economy slows down, which are like wheels of an automobile, naturally, if one or two wheels develop a puncture, slowdown is certain. A few years ago, one could have never ever imagined China becoming what it is today. But that is how the changed equation of the global economies stands today.

But let’s look at it logically. India too is pushing ahead with its ‘Make in India’ concept and all the reforms are expected to start bearing fruit from H2FY16. Maybe that’s the time when the world will bounce back too. So to a large extent, our domestic push will be enough to push our growth…….