China GDP – At 2.3%, China has created a massive edge over rest of the world

%name China GDP   At 2.3%, China has created a massive edge over rest of the world

At a time when India was grappling with thousands of farmers camping outside its capital, China announced its full year GDP growth for 2020 at 2.3%. Why is this growth significant and what does it mean for the Indian economy?

Slowest growth, oh really!

Most newspaper headlines dwelt on just one aspect of the China GDP story. The 2.3% growth in GDP was the lowest in Chinese economic history in the last 44 years. But that is missing the point. It needs to be viewed in the context of the fact that China was the fountainhead of the COVID pandemic and had taken a huge hit in the Mar-20 quarter. Despite that, China has managed to revive the growth in the next three quarters and end the year with positive growth. How exactly did China achieve this kind of an economic turnaround in a COVID year?

Exports and stimulus

Unlike the other global economies that focused more on a macro approach to stimulating the economy, China was a lot more focused. It focused more on fiscal incentives to small and large sized industries and to stimulate consumer demand. With a $2 trillion trade surplus each year, China focused on what it does best and that is to export. By the fourth quarter, exports have gotten back to record levels. In short China not only grew its exports but also managed to snatch export share from others.

First in, First out, First ahead

When the pandemic first broke out in Wuhan, China did respond with a near total lockdown. While it did create some jitters early on, it managed to nip the pandemic in the bud. As a result, China was not only first in but also first out of the pandemic. As other countries in the world grappled to come to grips, the Chinese think tank realized this was the time to make the big move. China gave substantial incentives to industry and synced with opening the floodgates of the economy. This ensured that China not only bounced back but also got a larger share of the global export pie. That, perhaps, explains why China has done so well in calendar year 2020.

What it means for India?

Even the best case estimates peg the full year contraction of Indian economy at closer to -7.7%. For CY2020, it could be worse than that. While the Indian economy appears to have recouped pre-COVID levels of economic activity, the bigger challenge is getting back to high growth. That is only possible with a clear cut export focus. Indian consumer income and demand will grow with a lag. Like China, this is the time to push up export share. Be it services exports or Atma Nirbhar program, the idea is to do a repeat of what India achieved with pharma in the 1990s and IT post 2000. Unless that happens, India risks the gap in growth with China widening again!

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