Is the Chinese behaviour predictable? A useful lesson By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

September 15, 2015 | Posted by bobbysrinivasan << back to blog

It used to be that when America sneezed the rest of the world caught a cold. Now the new saying goes as follows, “if China sneezes the world comes down with bird flu”. Let us look at some facts about China,

China accounts for 16% of the global output. In purchasing power parity terms it is the same as the US.
Back in 2008, when the entire financial world went into a virtual lockdown, it was the usual old fashioned pump priming by the Chinese government that prevented the global melt down. They pumped in $600 billion stimulus which saved the world from a serious deflation.
The government debt to GDP rose to 280% and currently the Chinese govt. hands are tied not being able to pump prime.
Year after year over 10 years China ramped up investment levels to nearly 50% of GDP. This resulted in building townships, offices, steel mills which they did not need.
It allowed its currency appreciate 40% against the Yen since the launch of abenomics which is hurting.
The size of devaluation is hardly 4%. This is not enough to seek a competiveness in the global market.
China probably wants a flexible exchange rate to enhance its chances of being included in the IMF SDR.
The Chinese government propped up the stock market only to let it collapse.
They announced drastic reforms of state owned enterprises.
All the government efforts are to bring in stability and to ensure a decent level of growth.

One thing is certain. China is a major player in the global scenario. They are sitting on a 3.6 trillion US dollar reserves which they have invested including in the US treasuries. Their hard work and competitiveness has enabled them to control the global manufacturing activity. They are presently over invested in infrastructure when the global economy gets revived they are already prepared to take their country to become perhaps the richest country in the world.

We in India are dreaming that we will go ahead of China in economic growth. This is sheer falsehood and misunderstanding. Our national reserve of 351 billion US dollar is not the equity but debt money arising out of external commercial borrowing, FII money in the stock market and NRI money. These are all perhaps short term funds. Our liability is in excess of $500 billion US $. We have enough money to service the foreign debt, but if required to repay, we will be in similar situation like in 1991. Truth is harder to digest but we should know that we are not in the same league of China and it is unlikely we will get there in the next couple of decades.

Finally, China is heading for a major economic slowdown. Early indications are that their GDP will grow only by 5%.

<< back to blog

About Us

TERM ZERO

Media

Rankings

Accreditations

NIRF

Campus

Blog

Annual Events

Full Time Programs

PGPM

PGDM

EXECUTIVE EDUCATION

Corporate Programs

PGXPM

PGPM Flex

MBA in Business Analytics

Family Enterprises Management

Ranked 6 ^th

Faculty

Research

Centers of Excellence

Conferences

Campus Recruitment

Internships

Placement Reports

Leadership Series

Talent Listings

Ranked 6 th

Ranked 6 ^th