China at a tipping point

AN opportunity beckons India after the latest reading of growth figures showed the Chinese economy may be heading downhill more rapidly than planned. China in 2018 recorded the lowest growth rate since the economic boom post-Tiananmen Square protests. Even the 2008 global financial crises had not as severely rocked the Chinese economic boat as the steady deceleration over the past couple of years. China is planning another stimulus, including tax cuts and more public spending. But a tipping point may have been reached and the World Bank predicts a global bleak economic outlook unless other engines carry on the growth process.

India is uniquely placed in this respect with its growth rate having outstripped that of China for two successive years. Statistics, of course, does not tell the complete picture. In absolute terms, China is adding vastly bigger numbers than India, which is a quarter of its size. But the potential is there because the Indian economy is considerably less vulnerable to a downturn in China since it is far less integrated into the global production chains dominated by Chinese companies. Its industry also stands to benefit from worldwide lower prices of natural resources such as oil once the demand from China turns tepid.

Since a prime reason for the cooling of China’s economy is its trade war with the US, it is reasonable to assume that India can be an attractive destination for Western companies deciding to relocate elsewhere. For the Chinese, too, India is one big market it ought to negotiate to enhance its current modest presence. This suits India because inbound investments from China can narrow the huge bilateral trade imbalance that cannot be realistically bridged by more exports. However, India should not aspire to replace China. Moreover, Western reports about China heading for an irrecoverable slump may be overblown for obvious reasons. Yet, China has entered a new normal and India needs to book its opportunities with a renewed thrust on manufacturing corridors and easier land acquisition and labour laws.