Why China allures

The Chief Ministers of both Telangana and Andhra Pradesh seem to at least agree on wooing investment from China. Why is China alluring?

Time magazine reported that a total of 38 per cent of global growth last year came from China, from 23 per cent in 2010. Thus the appetite for growth in Indian leaders is driving them to Beijing. When adjusted to account for differing exchange rates, in a measure called purchasing power parity, China’s GDP was the highest in the world last year.

Indian leaders’ interest in China at a time when the weak economic data is emanating from that country is certainly perplexing. Turbulence is rocking the contemporary China. China’s currency is devalued. Exports are on the decline. GDP is either contracting or shrinking. The contagion effect of China’s woes is adversely impacting the world economy.

But, China alone has no patent over sluggish economic data. The United States economy is struggling to recover from slow growth trajectory. Europe continues to be in economic and fiscal mess. Emerging markets like India, Brazil, South Africa etc., are also struggling. Perhaps this is the reason why China’s downturn is not dissuading our leaders.

The giant economy of China has the potential to feed the global demand. Despite recent rupture, China is still able to maintain around 7 per cent growth which is certainly not bad by present global standards. In fact, the Indian economy is also harbouring around the same level of growth. Besides, China is reorienting its economy from an export-driven one to a domestic consumption-fuelled economy.

This paradigm shift, if effected, could fuel global demand as this largest populated country with purchasing power in the hands of people can continue to be the major consumer of commodities. Thus, China with its massive fiscal muscle can both be an opportunity and a threat.

A host of factors make China hopeful. It has a large domestic market that can sustain its growth at a time when the global demand is witnessing slump. The falling global oil prices come in handy for China which is also a large consumer of oil and gas. The trends indicate that global oil prices would continue to be bearish for some more time to come.

China has mind-boggling foreign exchange reserves to the tune of four trillion dollars, which is more than twice that of Japan which comes the immediate next. Even after the recent devaluation of its currency, China still holds $3.557 trillion. The history tells us that China uses this to boost domestic demand for reviving its sagging economy.

The official clues are already coming. Finance Minister Lou Jiwei was quoted in a central bank statement as saying that government spending would rise by 10 per cent this year, up from the 7 per cent growth budgeted at the start of 2015.

“The considerable monetary, fiscal and macro prudential policy stimulus already in place and expected will put full-year growth in the 'about 7 percent' range," says Tim Condon, the head of research for Asia at ING Bank in Singapore. Thus this power of resilience makes China attractive.