RUSSIA AND INDIA REPORT - 23 September 2015
S C Ralhan, specially for RIR The shock devaluation of the Chinese Yuan has hit other emerging market economies, from Russia, South Africa, India to Brazil, whose exports are now comparatively more expensive, and there are fears of a round of copycat depreciations that could see a "currency war" break out.
China has cut its growth target for 2015 to 7%, the slowest expansion
in over two decades. August Data shows it will be a stretch to hit even
that. China is faring worse than many had expected. Its deceleration is
a major reason for the sell-off of global commodities, from iron ore to
coal, over the past two years. At a basic level, it was inevitable that
the Chinese growth rates of the past three decades, which averaged 10% a
year, would wane. The law of large numbers (financial, rather than
statistical) applies to nations as well as to companies: the bigger an
economy gets, the harder it is to keep growing at a fast clip.
Growth is a prime function of changes in labour, capital and
productivity. When all three increase, as they did in China for over one
and half decade, growth rates are superlative. But they are all slowing
now. China’s working-age population peaked in 2012. Investment also
looks to have topped out (at 49% of GDP, a level few countries have ever
seen). Finally, China’s technological gap with rich countries is
narrower than in the past, implying that productivity growth will
reduce, too.
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