Context-

• According to a report by The Diplomat, China's exports have declined by 14.5 percent and imports by 12.4 percent in July 2023.
• Additionally, four major Western banks have cut their 2023 gross domestic product (GDP) growth forecasts for China.
• According to UBS, Standard Chartered, Bank of America (BoA) and JP Morgan, China's GDP growth will be between 5.2 percent to 5.7 percent this year, which was earlier between 5.7 percent to 6.3 percent.

Background -

• China has been synonymous with continuous development for almost 25 years.
• But according to recent data, the Chinese economy is currently going through a state of deflation. Due to which there is a risk to the economies around the world.

Reasons for recession in China's economy -

• Delay in exiting zero- covid policy .
• Impact of structural changes such as shifting from an export and investment oriented economy to a domestic expenditure and innovation oriented economy,
• The exit of foreign portfolio investors from the Chinese capital market,
• Rapid incidence of inward foreign direct investment,
• Both retail sales and industrial production falling short of expectations,
• Decline in consumer spending,
• Increasing debt burden,
• Increase in unemployment,
• Real estate crisis etc.

Global impact of China's recession -

• According to the IMF, an increase of 1 percentage point in China's growth rate increases the growth rate of other countries by 0.3 basis points. Its decline will also have the opposite effect.
• The slowdown in China will definitely have an impact on the entire world economy as China is currently the number 1 commodity consumer in the world.
• Apart from this, in the last decade, China alone has been a partner of more than 40 percent of the global economic growth, whereas the share of America in this is only 22 percent and the share of 20 European countries is only 9 percent. 
• As a result, the slowing down of China's economy will prove to be a crisis for the global economy.

Impact of China's recession on India -

• Slow global growth will not be good for India either.
• If necessary steps are taken by India, lower commodity prices can benefit the Indian economy and thus attract more global savings.
• Apart from this, India is encouraging manufacturers ready to move out of China to set up a base here.
• Nevertheless, India's trade deficit with China may widen further due to potential growth differences and other factors.
• Looking at the other aspect, the slowdown in China's economy is an opportunity for India.
• On one hand, China's GDP in the April to June quarter has been 6.3 percent, while RBI has estimated India's GDP to be 8 percent during this period.
• In such a situation, India can attract foreign investment.
• Apart from this, India can benefit by diversifying the global supply chain.
• By promoting innovation and research, we can find ways to overcome such challenges in the future.

 IMPORTANT FACTS

IMF-

• Headquarters – Washington DC
• Established – July, 1944
• Managing Director-Kristalina Georgieva
• Currency-SDR 

China

• Capital-Shanghai
• President-Xi Jinping
• Currency -Renminbi
• At present China ranks first in the production of tin.
• Major iron ore producing area – Liaoning (Manchuria)
• China's longest river – Yangtze River