Chinese Economic Slowdown: The global impact

We all have been reading reports off lately about the Chinese economic slowdown. We might have wondered what it is and why is it of some grave importance in our context. Chinese economic slowdown refers to the reduction in the rate of the growth of the Chinese economy than what was predicted by the economists worldwide. The Chinese GDP growth was not as fast was expected at 8% but was a slower progress of 7%. 

Due to this there has been a major cut-down on the working class people in China with a large number of layoffs and increasing unemployment. Now, this is a situation for both the global economy as well as our economy. The Chinese economy is the second largest economy in the world and its share in the global GDP is extremely significant. Moreover, it has been seen that the Chinese economy is mainly export based. Due to this, there are some facets to the impacts the slowdown has to the global economy in general.

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The Global Impact:

Firstly, it has been studied that the contribution of China to the global economy is so significant that the slowdown of even 2 percentage per year in the Chinese GDP will mean a reduction of 0.5% in the global GDP. Many economists hence term China as the “engine that drives the global economy”. But saying that the Chinese economy is the one which drives the global economy is slightly flawed. This is because a driving economy is one due to which the economy of other nations prospers. An economy that is rapidly growing may be growing at the expense of other economies too.

The best example is the fact that although the Indian textile production was extremely high and of great quality in the global scenario, but Britain was the world leader in textile production due to the better benefits given to the British textile producers and the intentional slowing down of the Indian textile market. Although the effect of Chinese economy on the world is not the same as that of Britain on Indian textile industry, but the fact that Chinese economy has thrived on the expense of reduction in the magnitude of export from other economies which were producing the same export commodities as China got hit by the booming of the Chinese economy.

Some other implications are the Latin American countries getting hit really bad. This is because just like China, their economies are extremely dependent on oil exports. And a slowdown in the Chinese economy would directly mean a global reduction in oil and mineral prices, which hits their markets. Even the economies of nations which are dependent on exporting goods to China get affected badly as they cut down on the imports owing to the slowdown. This can be seen clearly in the scenario of this slowdown on Indian economy.

Impact on India:

The growth of Indian economy is extremely based on exports to China. Since China has a really big secondary sector industries with heavy demands for engineering equipment. These engineering parts were usually exported by us. Now, since the major imports from China are electronics and cheap hardware which are still increasing in demand, there arises a situation in our economy wherein the Chinese imports to India have been on rapid increase but the exports have declined due to the slowdown. Due to this, India owes approximately 4.5 billion US dollars in deficit, which has a chance of increasing. 

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But, not all economists look at this situation in a grim perspective. The silver lining in the cloud is the fact that a large number of industries in India and their exports got extremely hampered due to the cut-throat competitive pricing and mass production of Chinese counterpart goods. So, this provides an opportunity for us to become global market leaders in export of many commodities and in the rise of industries like hardware, sports equipment and so on.

Hence, we can see that although the Chinese economic slowdown has some effects on the global economy, but there is a bright side as the global economy can still be buffered from this crisis. Frankly, calling it a crisis also may be an understatement since the Chinese economy is not on the verge of collapse, which will hit the global economy but it is in a phase of long, gruelling periods of slow economic growth, which may not be a rosy scenario for China, but does not affect the global economy in the long run.

About the Author : Albin Jose did his schooling from Noida and completed his B.Tech from IIT Madras and currently working with an education based-firm in Mumbai. In free time, he like to read and go on treks in and around Mumbai. Through his articles he want to spread awareness among the aspirants.