Why exporters should consider decoupling from China and focus more on opportunities provided by India’s growth

Not many New Zealanders   may  have  noticed what is  happening in China or India – but their   economies  appear  to  be  tracking  in  opposite  directions.  Those movements could have a powerful  impact in  turn   on  NZ’s  economic fortunes.

Point   of  Order  is  indebted   to   two  remarkable   pieces  of  journalism  for   insights  that give  context to these issues.  One  report appeared in  the  Guardian  Weekly,  the  other in  The  Economist.

The  first, by  Larry Elliott,  was headed “Stifled dragon: No-one  should take  delight in Beijing’s  economic  woes”  and argues  a  full-blown   economic crash  would be  as  damaging  to  the  world as  the  US sub-prime mortgage crisis  was.

The  report in  The  Economist focused  on  India’s  economy  which, it  said, is  likely  to be the  world’s fastest-growing big  economy this year.  The  details prompted  The Economist  to  editorialise  that   the  Indian  economy  is  being  rewired.

“The  opportunity  is  immense— and so  are  the  stakes”.

The question  for NZ  exporters, who  have  become  dangerously dependent on  the Chinese  market  is  whether  they should   now  be  exploring prospects   on the Indian  sub-continent.

Larry Elliott  wrote  that  China has  been  central to the  story of  globalisation over the  past  30  years,  but  now  it is  struggling.

More  than two years after  Covid19  cases  were  discovered  in Wuhan,  the  world’s  most  populous country has  yet to get on  top of the  virus.

“Draconian  lockdowns  have  been  imposed  because China’s  vaccines are  less  effective  than  western  ones  and  immunity levels  are  lower too.

“Growth  is  slowing and  not  just  because  of the  tough  restrictions  insisted upon by President Xi Jinping.Flaws in China’s  economic  model, coupled  with  a  more  hostile geopolitical climate,  means  the  days  of  explosive  expansion  are  over”.

Elliott  goes  on to  note  how  China’s emergence as  an economic super-power was  boosted   through public  investment  and  credit  expansion ,  but  the  economic  cost  was  that  China  generated a colossal  amount of  debt  which  fuelled  a  property boom.

The  problems of  the property  giant Evergrande emphasises  the  vulnerability of   the  economy  to  a  debt  crisis.

“The  upshot… is  that  China’s  growth looks  certain to  slow. There  will  be  many  in the  West   …who will  take  delight in  China’s  disomfort….Washington  should be  careful what it  wishes  for.  China  is  a massive  economy,  and a  full-blown economic  crash  would be as damaging  to the  world  as  another  subprime mortgage  crisis in the US or  the  breakup  of the  euro…”

And:

“The  world  is  a  riskier  place  and China  is  one  big  reason for that”.   

The  Economist  says India has endured more than its share of bad news and suffering over the past three years.

The pandemic has killed between 2.2m and 9.7m people. Lockdowns caused the economy to shrink temporarily by a quarter and triggered the largest internal migrations since partition in 1947, as city workers fled to their villages.

Religious tensions have been simmering, stoked by the anti-Muslim chauvinism of the Bharatiya Janata Party (bjp), in power since 2014 under the strongman prime minister, Narendra Modi. Now a heatwave is baking the north of the country and the global oil- and food-price shock is battering the poor.

“Yet as our Briefing explains, if you take a step back, a novel confluence of forces stands to transform India’s economy over the next decade, improving the lives of 1.4bn people and changing the balance of power in Asia. Technological leaps, the energy transition and geopolitical shifts are creating new opportunities—and new tools to fix intractable problems. The biggest threat to all this is India’s incendiary politics”.

 The   briefing   says that  the trials  and tribulations of India’s  economy  are  epic. A  vast  national market  is  being  created, allowing  firms  to grow  from  economies of scale.

Internal migration  is  shifting tens of  millions  of  desperately  poor people, a  brash new consumer  class is  proliferating  and empires  are being built  on new  technologies

Tycoons  unleashing vast investments are  happy  to  debate whether they are India’s Rockefeller or its  Carnegie.

The  briefing   goes  to  spell out  in  detail   how  the  transformation  has  taken place.

The   question   for  New  Zealand,  as  Point   of  Order  sees  it,  is  whether we have  neglected  our ties  with India because of our short-sighted focus   on expanding  trade  with  China.

Isn’t  there  a  new  urgency  now,  as  the  Chinese  economy  falters, in  getting  the  long-discussed  trade  agreement  with  India signed  and  sealed?

Meanwhile  New Zealand has joined an alliance of Indo-Pacific nations aimed at countering China’s influence in the region.

More than a dozen countries, including India, South Korea, Japan and Australia, have signed up to the Indo-Pacific Economic Framework, which was launched by US President Joe Biden during  his  current visit  to Japan.

The framework outlined areas participating countries would now discuss setting commitments in, including supply-chain resilience, clean energy, infrastructure and digital trade.

Prime Minister Jacinda Ardern said New Zealand would benefit from deepened economic engagement by the US.

“As the world recovers from Covid-19 it is critical that trade and economic links are opened up and structures are put in place to provide greater security against future shocks.

“The Indo-Pacific region is of the utmost importance for New Zealand’s strategic and economic interests. We see this Framework as an opportunity to enhance our strong partnerships with major regional economies as we continue to reconnect with the world.”

Rob Ayson, Professor of Strategic Studies at Victoria University of Wellington, said that was likely one of the reasons President Biden created the framework.  It was to

“…set up rules where the United States can work with partner countries which basically aid the disconnection of China from some of these trading partners and to, in a sense, aid the decoupling of China in the economic side of that regional competition.”

Even   though  the  Indo-Pacific  Framework is  a  US construct, Point  of  Order believes  it  could be  the  springboard for    reorientation  in   NZ’s  trading  relationships—providing   we  can get a  bigger  foot  in the  door  with India.

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