How China Regained It's World's Largest Growing Economy Status
With stable and steady returns in developed financial markets and almost locked in growth potential, finance geeks all over the world are eying on potential rising emerging countries to penetrate in markets with rising consumption and Investments. Emerging economics comes with lot of backdrops including underdeveloped infrastructure, diverse culture, different political structure and policies etc.,however it poses unidentified markets and growth opportunities. And when financial tycoons locate such potential opportunities, it results in immense investments and trading activities, which ultimately benefits the nation and helps in uplifting the economy- transforming it into a developed nation. Thus, government and political institutions of every developing economy strives hard to attract foreign investments and boost internal business prospects. While fund and finance managers are substantially conscious about the costs and other benefits; governments make sure to provide what this corporators need. An example of such effort could be the campaign to boost manufacturing by world's two largest emerging economies- India and China, so called 'Make in India’ and ‘Made in China’ respectively. Both the campaigns intend to attract, invite and make it easy for foreign manufacturers to set up their manufacturing facilities in respective nations.
Manufacturing has boosted China's economy to new heights. Many manufacturing firms started settings up manufacturing plants in the country to reap cheaper costs of production and favourable trade facilities. India too is putting in efforts to build its economy by attracting foreign investors and manufacturers. Whereas China is more focusing on boosting internal demand to shift its dependency on other countries to foster trading and manufacturing.
Indian government is bringing in reforming changes to stabilize internal processes, mainly focused on tax reforms- be it demonetisation to curb black money in order to generate more tax income or GST to simplify indirect tax payment. However, such reforms have costs India a fall in its GDP growth, leading it to lose further its title of largest emerging economy to its biggest political and economical rival- China. India's economy grew at the rate of 5.7% vs 6.1% previous year, a consequent decline for straight three periods. While the China's economy grew at the rate of 6.9%, its strongest level since the third quarter of 2015, as industrial output and retail sales picked up while fixed-asset investment remained strong. Blame for constant falling economy of India was imposed on demonetisation and GST implementation. The effect of these two major reform had widespread impact on corporate earnings and consumers spending. However, optimism about long term benefits of such reforms has pushed Indian equities market to new highs with Nifty 50 crossing 10,000 mark.
China's economy on the other hand has grown to new heights due to rising industrial concentration, surging commodity prices, increasing financing demand from companies, the strengthening yuan and the stronger stock market performance. Rising investments in infrastructure and real estate by corporations and government are funded through debt fundamentally, which posses high threat to economy growth. China's economic prosperity is said to be a result of its government's proactive intervention in managing nation's currency rates in order to make foreign trades attractive and easy policy to raise and issue debts post financial crisis of 2008. This debt mountain represents a threat to China’s stability and even the world’s economic health, while others argue such fears are overdone as most of the country’s debt is state owned and therefore, they say, manageable. China’s debt is more than 250 percent of its GDP.
China has already been growing at higher rates surprising economists and experts, some believe it will rise further to surpass United States as world's largest economy, while some believe rising debt and dependability on other countries for its trades may cause a financial and economical slowdown. On the other hand, India is assumed to be over passing China to be world's largest growing economy. However it's current reforms have slowed the growth but this might change soon as these reforms are deemed to fuel the economy in the long term. India's rising role in world's trade and various initiatives by government to boost infrastructure and foreign investments might make it one of the fastest growing economy, all set to outperform China. However India, too, is grappling with rising NPAs (Non Performing Assets)* and slower growth in companies earnings as compared to rise in the level of its equity markets, posing a threat of financial slowdown, if companies fail to earn up to the investors expectations. While both nations are putting in efforts to be at the top, time will tell us who managed assets, liabilities and investments well and in whose favour International politics worked well.
For the current period, as India is undergoing two of its major reforms, it's slowed economic growth has made China once again world's largest growing economy, the title which India won by growing the rate of 7.3% by the end of 2015. It will be imperative for both the nations to manage their debt and infrastructure developments. I believe if India needs to surpass China, it will have to invest largely in infrastructure and make it judicial system efficient enough to attract and retain foreign investors along with promoting financial literacy, health and education awareness and subsidies to promote trading and demand.
*NPAs or Non performing assets are those assets which have ceased to generate any income for the lenders such as banks. Eg. Inability of borrower to pay interest or loan or both to lender. Bad loans in India amounts to Rs. 7,28,768 crores of which Rs. 6,43,705 crores are from public sector banks. While total stressed assets amount to around Rs. 14,50,000 crore.
(Data Source: India Business Journal, pg. 24, August 2017)
