Hard times for China

But it’s likely to shake off its debt-re­lated woes

The Hindu Business Line - - THINK - G CHANDRASHEKHAR The World Bank Singapore’s The US HMD Global In the Women’s

With a GDP value in ex­cess of $11 tril­lion, China’s econ­omy is 17 times larger now than it was in 1980. No won­der, the re­cent Na­tional Congress of the Com­mu­nist Party of China as­sumed spe­cial sig­nif­i­cance for the global econ­omy and mar­ket par­tic­i­pants.

Un­til re­cently, the Chi­nese growth strat­egy was es­sen­tially in­vest­ment-led which en­vis­aged large out­lays es­pe­cially in fixed as­sets such as in­fras­truc­ture and power. That meant rav­en­ous ap­petite for con­sump­tion of com­modi­ties, es­pe­cially in­dus­trial met­als (steel, base met­als). China con­sumes 40- 50 per cent of most in­dus­trial met­als, even as it is a large pro­ducer. For in­stance, it ac­counts for 50 per cent of global steel pro­duc­tion of 1,600 mil­lion tonnes. No won­der, the coun­try is the mover and shaker of the world met­als mar­ket.

In­ter­est­ingly, in China, State Owned En­ter­prises (SOEs) play a sig­nif­i­cant role in eco­nomic ac­tiv­ity. But many of the SOEs are in­her­ently in­ef­fi­cient and nurse large ex­cess ca­pac­ity. Pol­icy at­ten­tion is now di­rected to­wards mak­ing th­ese en­ter­prises more mar­ket-savvy. How­ever, hav­ing achieved rapid growth through mas­sive in­vest­ment, in the last Na­tional Congress held five years ago, the pol­i­cy­mak­ers in China brought about a sub­tle change in fo­cus. It was de­cided that the econ­omy must grad­u­ally tran­si­tion from in­vest­ment-led growth to con­sump­tion­led growth. This has changed the com­po­si­tion of Chi­nese im­port and con­sump­tion bas­ket.

In the process of rapid and en­vi­able growth, two con­cerns have emerged. One re­lates to en­vi­ron­ment and the other, debt. Im­por­tantly, China’s debt lev­els have soared. Rel­a­tive to GDP, China’s to­tal level of debt (pub­lic plus pri­vate) has crossed 250 per cent

BBBBBwill re­lease the 2018 edi­tion of the ease of do­ing busi­ness sur­vey. In­dia is bet­ting on sig­nif­i­cant im­prove­ment in rank­ing on the back of re­forms taken to im­prove the ef­fi­ciency in grant­ing con­struc­tion per­mits, start­ing a busi­ness and re­solv­ing in­sol­vency. The rank­ing plays a key role in help­ing for­eign in­vestors de­cide where to in­vest.

for­eign min­is­ter Vi­vian Bala kr­ish­nan will ar­rive in New Delhi on a two-day visit as In­dia and Singapore ex­change a se­ries of min­is­te­rial vis­its in Novem­ber. Dur­ing his visit, he will call on Prime Min­is­ter Modi and Ex­ter­nal Af­fairs Min­is­ter Sushma Swaraj.

Fed­eral Re­serve’s two-day meet will be­gin to­day. Even as the Fed is widely ex­pected to keep the in­ter­est rates un­changed, Pres­i­dent Don­ald Trump’s de­ci­sion on who will re­place Janet Yellen, whose term as chair ex­pires in Fe­bru­ary, will also be a mat­ter of great in­ter­est for all con­cerned.

will likely launch the Nokia 2 or Nokia 7 or both in In­dia. While the Nokia 2 is seen as a bud­get phone, the Nokia 7 ap­pears to be a mid-seg­ment phone. The com­pany is look­ing to emerge a top player in the coun­try over the next 3-5 years.

Asia Cup Hockey tour­na­ment, in Kakami­ga­hara, Ja­pan, In­dia will play against Malaysia in their last pool match. In­dia dished out an all-round per­for­mance to stun China 4-1 and reg­is­ter their sec­ond con­sec­u­tive vic­tory on Sun­day. In­dia had de­feated Singapore 10-0 in their tour­na­ment opener. of GDP, ac­cord­ing to Bank of In­ter­na­tional Set­tle­ments. The big­gest in­crease oc­curred in China’s al­ready highly in­debted non-fi­nan­cial sec­tor.

Ex­perts as­sert that it was at such hu­mon­gous debt lev­els that Ja­pan in 1990 and Eu­ro­zone in 2007 and the US in 2008 be­gan their debt cri­sis. As debt ac­cu­mu­lates, China’s econ­omy has be­gun to slow con­sid­er­ably. Since 2015, we have seen cap­i­tal flight, fall in forex re­serves (from $3.8 tril­lion to about $3 tril­lion) and weak­en­ing of the cur­rency Ren­minbi due to ex­ces­sive debt con­cerns.

All this is seen ex­ert­ing pro­found im­pact on world com­mod­ity mar­ket as ev­i­denced by col­lapse in price of many com­modi­ties, es­pe­cially in­dus­trial met­als — iron ore, steel, cop­per, alu­minium, etc. China has now com­pleted 15 years since be­ing treated as non-mar­ket econ­omy un­der the WTO mem­ber­ship. What if China at­tains Mar­ket Econ­omy Sta­tus (MES)? How will it im­pact global com­mod­ity mar­kets? It will be neg­a­tive for com­mod­ity-driven sec­tors. Iron and steel, chem­i­cals, ce­ram­ics and tyres ben­e­fited so far by anti-dump­ing du­ties. MES is likely to ben­e­fit China as it will re­duce the op­por­tu­nity for Chi­nese com­peti­tors to ini­ti­ate an­tidump­ing mea­sures against China’s ex­ports.

At the same time, it is sure to bring more trans­parency in Chi­nese pric­ing (pro­duc­tion and sale) and would help push Chi­nese ex­ports. In­ter­est­ingly, a third of anti-dump­ing cases glob­ally are against Chi­nese goods.

With­out doubt, China is is strug­gling to man­age its econ­omy, but it can bounce back grad­u­ally. Dis­cus­sions at the Na­tional Congress are there­fore of great in­ter­est for its fu­ture , and for the world,too.

The writer is a com­modi­ties mar­ket spe­cial­ist

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