Today everybody concerns about the fast growth of China as compare to world economy. The question arises “Will crash in Chinese economy drags down US & Indian economy”. I don’t think crash in Chinese economy will drag down US or Indian economy. Yes China is one of the largest consumer of commodity and the main cause of exceptional high commodity prices in 2008. In 2008 oil prices reach $ 147 barrel due to exceptional high consumption of oil in china. If Chinese economy goes down then it makes commodity prices to be stabilize on lower side and provide great impetus to Indian & other developing economy to in-cash low commodity prices on their infrastructure development so they can be more competitive to china and other countries. Presently India is lacking on infrastructure front as compare to China. India requires huge investment in infrastructure sector which are mostly commodity driven. Once commodity prices stabilize on lower side then India can use it for optimum advantage to build infrastructure so that in future foreign companies choose India as compare to china to setup R & D and manufacturing HUB. India has advantage over China in terms of education & english speaking which is hugely untapped due to lack of infrastructure in the country. Once India develops adequate infrastructure then foreign companies will prefer India to China due to quality manpower. Apart from this, India already has advantage in service industry e.g. software industry over China and once India develops adequate infrastructure then foreigners will treat India as “Complete Economy” and becomes ready to create reverse innovation in India.
Yes, crash in Chinese market will impact in a great deal to US economy. China is an export oriented country and its more than 60% revenue comes from exports. China invests heavily in US treasury and stock, at one point of time it was more than $ 1 trillion and has major say in US financial crises. If Chinese economy goes down then china will take out all their money from US treasury and it affects US economy by drastic reduction in the value of US treasury and brings in liquidity crisis in US economy.
Chinese crises will impact India little bit indirectly due to erosion in the value of US treasury and liquidity crisis. Erosion in the value of US treasury hampers US $ and depreciates its value via all global currency. It makes Indian export little expensive and generate outflow of money in the Indian stock market as FII takes short term advantage of strengthening rupee against US $ by way of profit booking.
In order to boost its economy growth china has made huge investment in infrastructure development and totally ignore social security net & healthcare. Yes lastly they have allocated some amount for healthcare segment but still it is very less as compare to requirement. I am not sure whether these infrastructure investments will be productively used in future. I can say these investments are totally misaligned against current & future requirement.
Today I have posted another article Why Dubai Defaulted? Dubai world quashi- defaulted and the main reason is that Dubai has made investment in unproductive assets like biggest shopping mall, man made island, indoor sky slope etc. If china can’t align its investments properly then they will face the same kind of situation.
Apart from this china has huge investment in US TRESURY however value of US $ is continuously declines and there is a great danger that in future US $ will be taken out from reserve currency basket due to huge fiscal deficit. In that case china will lose huge money.
I think Chinese have done something beyond basics and these things can impact their economy in future. But for Indian perspective it will be good as it provides India and other developing countries an opportunity to make their presence felt globally otherwise in most of the cases they lose to china globally due to pricing, infrastructure and other issues.