How Does The Economic Slowdown in China Affect India?

On Monday it was mayhem across global markets as fears of a economic slowdown in China sent shivers across the spine of global markets.

Indian markets also reacted in tune with global markets and benchmark indices crashed a huge 6 per cent. Check Sensex gainers and losers

But, will corporate India or Indian economy really be affected by China's slowdown?

China not a big export market for India

Indian exports to China is not very much. In fact, it is around 10 per cent of India's total exports. India exports items like iron ore, chemicals and allied products to China. If the Chinese economy is hit, exports, which are now at 10 per cent could be hit. But, this is really not very significant to worry about.

Other East Asian economies really need to worry, because they export a greater deal to China. The worry is not really that trade would get hit. The real worry is that the world economy has integrated so such, that the indirect effects are plenty.

For example, if and when China crash lands, it would hit many companies that have significant manufacturing base in China, especially US based companies. When US based companies are affected, contract for Indian IT services from US companies may shrink.

It also leads to a pull-put of money from Foreign Portfolio Investors in India, which can than lead to a fall in the Indian stock markets and also the Indian rupee.

Also, a slowdown in China would lead to commodities like metals being badly hit. Lower metal prices would have an adverse impact on steel manufacturers in India as they have to compete with imports.

It's all a indirect impact of a Chinese economic slowdown on India, rather than a straightforward one. A economic slowdown in China will affect other countries, which in turn would indirectly affect India.

India insulated to a large extent

India is a domestic consumption story. We have not been an export driven economy like China. We largely produce and consume ourselves. Hence, we are relatively insulated, though as explained above, one can never be entirely insulated from the global economy and there are some indirect affects that are going to be there.

But, India is in a much better position that most countries, especially from other parts of Asia, which have significant presence in China through exports and manufacturing.

That having said, one would always hope that there is a recovery in China, which could be good for India, though a cash landing in China would not be catastrophic for the country.

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