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Worries of a sustained slowdown in China as a result of its zero-covid strategy are troubling policymakers and trade experts worldwide. International crude oil prices have already declined. Mint explains the implications and opportunities for India:

Why did China cut rate as others raise them?

China’s central bank unexpectedly slashed rates on Monday after data showed economic activity slowed broadly in July — including consumer spending and factory output — sending oil prices down sharply and reigniting concerns of a global downturn. China’s retail sales and factory data witnessed a growth, but were far below market expectations, analysts said. Retail sales grew by 2.7% in July from a year ago and industrial production rose by 3.8% on a year-on-year basis. Meanwhile, major global economies such as the US and the UK are witnessing record inflation. The RBI has hiked repo rate to pre-covid-19 levels of 5.4%.

How does it help India in the global market?

With a number of countries adopting a China plus one policy, China’s losses could be India’s gain. Resetting of the global supply chain following the covid-19 pandemic has brought India to the fore. Developed countries are engaging with New Delhi to forge trade partnerships. A prolonged slowdown in China could help India leverage the opportunity by negotiating better deals with major developed economies. Australia’s worsening relationship with China pushed Canberra to focus on India, and more developed countries have shown interest towards the same including Canada, the European Union and the United Kingdom.

Photo: Bloomberg
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Photo: Bloomberg

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What could be the impact of lower oil prices on India?

India could benefit from lower oil prices, which are facing a downward trajectory due to concerns of a demand slowdown. Brent crude eased below the $95 mark on Tuesday after economic data from China, the world’s largest crude importer, sparked global recessionary concerns. However, this may help lower India’s import bill and may support the rupee.

How will it affect Indian exports?

China is India’s second-largest trading partner, accounting for 5.04% of India’s total exports and 15.43% of India’s imports. A lot of raw material used in India’s electronics, auto, and pharmaceuticals come from China. With China occupying a large share in India’s export basket, demand slowdown there may further hit India’s total outbound shipments, which have sharply slowed down, growing just 2.14% in July. Supply side disruption due to China may also fuel further inflationary pressures.

What is the view from global agencies?

Most global brokerages and multilateral agencies have cut the growth forecast for China, citing its zero-covid policy. The World Bank in its report released in June said that China is expected to grow 4.3% in 2022 and 5.2% in 2023. The forecast for this year has been downgraded 0.8 percentage points, reflecting larger-than-expected damage from covid-19 and related lockdowns. The Asian Development Bank estimated China’s growth to be at 4% in 2022, down from an earlier estimate of 5%.

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