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India, China not yet strong enough to drive revival: experts

India, China not yet strong enough to drive revival: experts
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First Published: Wed, Sep 24 2008. 12 33 AM IST
Updated: Wed, Sep 24 2008. 12 33 AM IST
Beijing: The global financial hurricane has swayed China and India only slightly, but the emerging Asian giants are not yet strong enough to drive a revival in world economic momentum, analysts say.
For all the talk of Asia as a new locomotive of growth, the recent turmoil has only underlined the US’ status as overwhelmingly the most important player.
“The US is still the largest economy. If it’s in trouble, it’ll drag down the rest of the world,” said Sherman Chan, a Sydney-based analyst with Moody’s Economy.com.
“I don’t think India and China will be able to save the rest of the world just yet,” she said.
While the US accounts for roughly a quarter of the global gross domestic product, China and India combined, contribute less than 8% if measured by official exchange rates.
“This is a once-in-a-century kind of event, a seismic event, we still don’t know exactly what will be the repercussions,” said Amitabh Chakraborty, head of equity research at Religare Securities Ltd.
“Certainly India is not in a position in any way yet to offset these kinds of global problems.”
China has $1.8 trillion (Rs82 trillion) in forex reserves and people like Mei Xinyu, an economist at a government-linked think tank, believes the “crisis is a good opportunity for buying cheap assets”.
But he also warned China has much to consider before it plunges in, from estimating the real value of US institutions to the risk that Washington will restrict management and voting rights.
China has already been burned, with seven listed banks announcing bond holdings of $721 million in bankrupt US investment bank Lehman Brothers Holdings Inc. as of Monday, according to the Securities Daily.
India’s stock market has also been hurt by the liquidity crunch with the benchmark Sensex index 31.01% down this year.
However, for a situation in the developed economies that some observers are calling the worst crisis since the 1930s, the two Asian nations have come off relatively lightly.
China’s growth may have slowed, but it remains in double digits, reaching 10.1% in the second quarter.
For now, India, too, looks unlikely to take a beating outside of its fickle financial sector. “The key impact from the latest financial turmoil will be on risk appetite and on capital inflows into emerging markets, including India,” said Rajiv Malik, a Singapore-based analyst at Macquarie Securities.
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First Published: Wed, Sep 24 2008. 12 33 AM IST