A Debt level and economic growth rate
Since 2015, India’s economic growth rate has begun to accelerate. The driving force for China’s economic growth mainly relies on the transformation process from rural to urban areas and large-scale infrastructure construction, but this marginal benefit is gradually diminishing. In contrast, India’s urbanization process is not more advanced than China’s, but it can sustain India’s growth rate for a longer period of time. India’s debt ratio is half that of China’s and has not grown in the past decade, which could keep India on course for years of strong growth that exceeds China’s economic growth rate. However, we have also noticed that in order to combat the country’s huge shadow economy, Indian Prime Minister Modi’s policy of abolishing large currency is harmful to the economy, and India’s short-term economic growth rate may lag behind China’s.
The level of debt generally corresponds to the level of economic growth and interest rates, but in both cases, the relationship is often “the chicken comes first” Which came first, the egg?” question. Economies with less volatility tend to have slower economic growth and can support high leverage ratios, but high leverage ratios will slow down economic growth. Low interest rates can encourage credit growth and growth and high debt ratios, High debt ratios in turn require low interest rates to ease public and private debt burdens.
The picture shows the comparison of the economic growth rates of China and India
When the debt ratio is very low, a country can promote economic growth by increasing debt leverage. However, as debt levels rise and further borrowing is mainly used to service existing loans, economic growth will slow and interest rates will eventually be forced to very low levels.
The picture shows China’s treasury debt debt level
B Trump The impact of the Prussian government’s trade policy
The picture shows a comparison of China’s exports and imports
For most of the past three decades, China’s economic growth rate has far exceeded India, this could easily attract the attention of the US government. Investment and exports are closely integrated, and these two factors have contributed to China’s economic miracles. China’s total exports now account for 21% of GDP, of which 18% (accounting for about 4% of China’s GDP) go to the United States. China’s investment in infrastructure construction is mainly to facilitate exports, such as developing many port cities and improving transportation networks to allow goods to reach coastal shipping points faster. China has been trying to reshape its economic growth in recent years, with some success by increasing domestic consumption, but it still has a long way to go to change its heavy dependence on exports.
India’s economic growth relies much less on exports. India’s exports account for 13% of GDP, of which 12% (about 1.6% of GDP) are exported to the United States. Unlike China, India has been trying to develop infrastructure to facilitate exports, but land issues have been a major obstacle because private property owners and local governments can block or delay the construction of critical infrastructure, which is not a problem in China. This situation hinders the dispersion of products from the interior to its ports, thereby slowing down the pace of Indian industrial expansion. Therefore, the growth of the Indian economy is more oriented towards the service sector. While lagging growth has its drawbacks, India’s lack of strong merchandise trade may also help avoid a trade dispute with the United States.
Trump’s trade disputes are mainly focused on two countries: China and Mexico. Judging from his public remarks, India does not seem to be on his radar. This is good news for India, but worrying for China. Given China’s debt levels, a trade war with the United States could undermine China’s economic growth and raise the possibility of a debt crisis and currency devaluation in China.
Although China’s exports have dropped significantly, the contribution of overall trade to GDP growth is positive. Because of the way Gross Domestic Product is calculated (adds government spending, investment, consumption, and exports, minus imports), when imports fall, it also increases GDP.
From 2014 to 2020In 2016, China’s import decline was mainly due to the decline in commodity prices. Crude oil and refined oil imports accounted for 15%, and iron ore and copper accounted for 6%. As crude oil and metal prices fell by more than 50%, China’s imports decreased, resulting in an apparently stable GDP growth level in the 6.5%-7.0% range. Today, commodity prices have rebounded and imports are starting to grow again, but exports continue to be weak. If China cannot offset the negative contribution of trade growth, its economy may slow down again.
If the Trump administration expands trade disputes and imposes import tariffs on Chinese goods, China is not defenseless. China’s main weapon is its exchange rate. For the United States, those most affected by China’s currency depreciation are those regions that export agricultural products to China and some local manufacturing industries occupy an important area.
The Indian rupee is at a relatively reasonable level and the Indian currency depreciated before most currencies between 2011 and 2013. Unlike China, which has consumed a quarter of its foreign exchange reserves to defend the yuan, India’s foreign exchange reserves have It rose from US$326 billion at the beginning of 2017 to US$337 billion at the beginning of 2017. Although India’s foreign exchange reserves are small, the amount is increasing rather than decreasing.
The picture shows RMB VS ruble
The picture shows China’s foreign exchange reserves
C Monetary policy, interest rates and stock market
In recent years, China and India have implemented loose monetary policies. Given India’s stable growth levels and the likelihood of a rebound in inflation, there are hopes that the Reserve Bank of India will begin a tightening monetary cycle. India’s interest rate hike cycle will depend on how much damage the demonetization of large currencies will cause to the economy, and we won’t have a definite answer until the second quarter.
For stock market investors, India’s solid economic growth prospects seem to have emerged in the stock market. India’s Nifty 50 index has performed well in recent years, with a price-to-earnings ratio of 18.6 times.
The picture shows the role of banks
However, what is worrying is that for the Nifty 50 index to maintain its outperformance, India’s economic growth must be strong enough to meet market expectations. This will be a challenge, but there are several factors that may help India.
D Population and Agriculture
Over the past few decades, China has been an ideal commoditiesAs an importing country, India is very dull, but this situation may change. The per capita daily calorie intake in China is now 3,000, while in India it is only 2,500. In addition, India’s population may grow by 30% in the next 25 years, while China’s population may remain unchanged. Although China has fully liberalized its “two-child” policy, the contribution of this policy to China’s population growth rate is not obvious.
Given that India is currently facing accelerated urban expansion and stagnant agricultural production, it is difficult to believe that India can fully meet its consumption needs domestically. Therefore, India offers a huge market opportunity to farmers across the world, especially those who can provide lentils, peas, chickpeas, almonds and other agricultural products. Meanwhile, as India becomes richer, dairy and vegetable oil consumption is likely to grow significantly.
India does not need much animal feed. Only 9 calories out of the 2,500 calories Indians consume every day come from animal protein. Meat consumption may expand as wealth increases, but may encounter significant cultural barriers. Finally, after economic growth reaches a certain level, food consumption growth usually stagnates. In contrast, China’s dietary structure has matured and its food consumption demand will not change much.
(Editor: DF306)
