Thursday, March 8, 2012

Impact of China's Economic growth slowdown on India

The Chinese Premier Wen Jiabao recently stated that the government was targeting a growth of 7.5 per cent in 2012. The fears of chinese economic slowdown has been prevailing since past couple of years which is now becoming a reality. 

While there is no hard landing, the world has become accustomed to China growing at 10 percent per annum. So, any slowdown would have global impact. Also, as China is the largest importer of base metals (lead, zinc, aluminium, copper and nickel), the slowdown has made commodities market nervous. Most global commodity stocks like Alcoa, Rio Tinto, Tata Steel, Hindalco are down significantly in past one week or so.

Given that China is the world’s largest consumer of base metals, any slowdown in growth would impact the consumption of these metals and, consequently, their prices. Commodity experts expect aluminum and copper prices to come under pressure. Nickel, too, is expected to remain weak due to higher stocks at the London Metal Exchange warehouses.

But all is not that bad when viewed from India's perspective. India is not a big exporter of base metals. It is a net exporter of iron ore, but since most of these are to Japan, a slowing Chinese demand may not hurt iron ore exports. Given that India is also an importer of base metals, weaker prices of commodities will be beneficial. Despite base metal prices coming under strain, experts do not expect any crash yet, given the US economy is recovering and Europe is not in as much trouble as was anticipated a few months ago.

Slower Chinese growth wll surely affect commodity-exporting countries like Canada and Australia but India is not a big producer in the commodity market and therefore, the impact would be limited to metal producers. The slowing Chinese demand could well be compensated by a pick-up in demand from the US, Europe and other BRIC economies.

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