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…”
“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.