Slowdown in Chinese Economy and its Impact on the World
Slowdown In Chinese Economy
And Its Impact On The World
Introduction to the Chinese slowdown
Effects on Chinese economy
Reasons for the slowdown
Effects on Indian and global economy
Recent happenings in the market
Future predictions of Chinese market
CHINA 2015: (Govt Actions)
sources: HiddenLevers, Bloomberg
Reasons for Slump
Fall in Steel
1. Real Estate Bubble
Accounts for 25% to 30% of China’s GDP
Extremely low loan rate at 6%p.a
Lucrative domestic investment destination for Chinese
Large number of vacant and under-performing commercial
Defaults by overleveraged real estate developers
2. Global Slowdown
Manufacturing constitutes 59% of GDP.
Reduced Demand from EU, Japan, South
3. Rising Debts
Total Debt about 250% of GDP
Repayment burden after initial phases
China’s inventory of unsold homes at record high
Property rates fell
4. Yuan Devaluation
Initial Devaluation of currency by the Central Government.
Allowing the currency to follow market leading to pessimism.
Depreciation lead to capital outflows.
Importers were at loss trading with depreciating Yuan
5. Fall in Steel Demand
Decline in automobile & construction sector
Largest producer of steel in the world
Cheaper commodity Prices
Cheap commodity prices leading to cheaper imports
Lower input costs & higher profit margins
An attractive alternative to China
Chinese investment in infrastructure in India($60 bn)
Chinese demand has decreased
India’s exports to China has decreased (14.8 to 11.9)
Cheap Chinese products competing with the domestic industries
of India (Ex: Steel) Sources:
• Business Standard
• Trading Economics
• Ministry of Commerce, India
China economy grows at slowest pace in 25 years
, 6.9% in 2015 (Source : The Guardian)
ISM’s PMI : 49.5 (Feb ‘16), 48.2 (Jan ‘16)
China sees fiscal deficit at 3% of GDP (Source
Will the slowdown continue?
“Yes. Generally speaking, economic
growth will slow down. But China will
still maintain a sustainable growth rate.”
-Cao Heping, economics professor at
Restructuring of the Chinese economy
Some macro-economic expectations
Slower GDP growth - Analysts at Barclays
Research forecast 2016 GDP growth to slow to
6%, while UBS analysts have a slightly more
optimistic prediction of 6.2%.
Rate cuts - Barclays Research predicts two 25
basis points benchmark rate cuts in 2016. One
strong reason – deflation pressure
Yuan depreciation - Analysts at Barclays expect
the dollar-yuan exchange rate to drop to 6.8 by
mid-2016. Euro also a key factor.
Sectors like Food & beverage, healthcare, private education, clean technology,
cloud computing, e-commerce, logistics and telecom and IT expected to
McKinsey estimated that China's health care spending will balloon to $1
trillion in 2020 from $511 billion in 2014
China's private education sector has reached a market size of $102 billion by
2016 from $43.5 billion in 2009 and is expected to maintain pace acc. to
China's online sales, or "e-tailing," totalled $450 billion in 2014 and is
projected to hit $1.1 trillion by 2020 acc. to Bain & Co.
Last year, China spent heavily in the sector as clean energy investment hit a
record $67.7 billion, up 20% from the previous year, according to BNEF.
Dollars are expected to continue pouring in
Large foreign companies that specialize in cloud services are moving into the
• The trade volume of China with USA is USD 482 billion
• Unemployment rate is decreasing in USA
• Federal Reserve has hiked interest rates
• Development of Asian Development bank has created new
opportunity to China
Main Concerns !!
• There are reasons to doubt the sustainability of service sector.
• Forecasted GDP growth of 6-7% is hard to believe
• Accounting policies are not transparent
• The Shanghai Composite Index can not tell the real picture
• Mitigation of the carbon footprints may require restructuring of economy.
• Chinese stock market may not grow
• Inflation will be about 1%