Slowdown in Chinese Economy and its Impact on the World

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This presentation includes the overview of the causes and impact of Chinese slowdown and throws some light on future possibilities which can occur and main concerns to worry about.

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Slowdown in Chinese Economy and its Impact on the World

  1. 1. Slowdown In Chinese Economy And Its Impact On The World
  2. 2. 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
  3. 3. CHINA 2015: (Govt Actions) sources: HiddenLevers, Bloomberg
  4. 4. China Before Economic Slowdown
  5. 5. Reasons for Slump Real Estate bubble Global Slowdown Huge Debts Yuan Devaluation Fall in Steel Prices
  6. 6. 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 properties Defaults by overleveraged real estate developers
  7. 7. 2. Global Slowdown Manufacturing constitutes 59% of GDP. Reduced Demand from EU, Japan, South Korea
  8. 8. 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
  9. 9. 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 (Renminbi)
  10. 10. 5. Fall in Steel Demand Decline in automobile & construction sector Largest producer of steel in the world
  11. 11. Effects on India
  12. 12. Positive Effects: 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)
  13. 13. Negative Effects:  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
  14. 14. Effects on Global Economy
  15. 15. Impact due to Reduced imports
  16. 16. Impact on Countries
  17. 17. 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 : Reuters) Recent happenings
  18. 18. Source: CNN Money
  19. 19. Source: TOI
  20. 20. 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 Peking University Restructuring of the Chinese economy
  21. 21. 28.2% 27.1% 15.1% 11.1% 10.7% 10.3% 10.1% 10.0% 10.1% 10.0% 9.0% 8.5% 47.9% 41.3% 45.9% 48.5% 47.4% 46.3% 46.7% 46.6% 45.3% 43.9% 43.5% 40.5% 23.9% 31.5% 39.0% 40.4% 41.8% 43.4% 43.2% 43.4% 44.6% 46.1% 47.5% 51.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 1978 1990 2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 China's GDP composition Primary Secondary Tertiary Source – National Bureau of Statistics of China
  22. 22. 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.
  23. 23. Promising sectors  Sectors like Food & beverage, healthcare, private education, clean technology, cloud computing, e-commerce, logistics and telecom and IT expected to perform well  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 Deloitte  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 China
  24. 24. • 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
  25. 25. 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%
  26. 26. Thank You

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