THE CHINESE CONTAGION

‘If China sneezes, rest of the world has cold’, this phrase is so horribly outdated. Chinese markets fell about 6% after its PMI came below 50 indicating contraction of economic activity in December 2015. As for India, BSE Sensex and Nifty 50 declined by almost 2%. There are obvious reasons why China is sneezing these days and decline of their domestic indices is just a side effect of the medicine administered by the Chinese authorities to the economy. To transform an export led economy to a domestic consumption powerhouse is not easy. In addition to that, the Chinese government is strengthening its financial sector & stock market regulations, cracking on corruption & shadow banking etc. And they also have the financial muscle to go through this detoxification process.

What about the rest of the world? Whether it is Europe, or Latin America, Africa, Middle East countries all financial markets tumbled. Not because of China. Chinese slowdown will only add to their specific domestic problems. The best example to explain this is through our own country. FDI & FII flows have declined for India due to slow reform process and slowing China & declining yuan will impact both our industry and currency competitiveness. And can we blame China for fall in our PMI (49.1) for December last year.  We cannot, but we can always fortify our economy by passing GST and other impending bills and attract foreign capital. China will definitely get its act together, as for us, let’s see what happens after 23^rd Feb in Parliament.