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#sowhoknew: Will India benefit the most from the faltering Chinese economy?

My recent article ‘Forget Greece, the real financial crisis is happening in China’ certainly struck a chord with LinkedIn readers – it was viewed almost 20,000 times. Since that piece, the financial stability of the Chinese economy has (at best) been somewhat volatile. This prompted the  question, who might benefit from this? And, the simple answer appears to be India.

The woes in the Chinese stock exchange have been well documented so I won’t bore you by repeating them yet again. But other economic indicators reported out of Beijing this week add more doom and gloom to an already bleak outlook. Consumer price inflation slowed in China much more than anticipated in September which clearly reflects weak domestic demand. In the same month, it was reported that imports had fallen by around 20 per cent. And, in my humble opinion, the most interesting indicator of China’s slowdown? Luxury brand Louis Vuitton admitted this week that they were feeling the pinch and blamed their sluggish sales on China. Their CFO, Jean-Jacques Guiony, made it very clear to investors, “This is obviously connected with what happened in China in July and August in the stock market. We know perfectly well that when asset depreciation of such a magnitude takes place, this has an impact on our business, and China was no exception. The drop in the stock market has taken its toll.”

So as China continues to falter, does this provide the opportunity that India have been seeking to reignite their own stop / start economy? Well, the media certainly seems to think it’s time for India to step up and take their chance. Various reports in the Wall Street Journal, CNN etc. have suggested that because of the recent economic turmoil in China they claim that India can overtake them as the driver of the world economy.

Consumer spending in India has remained remarkably resilient which gives them a distinct advantage as demand has decelerated in most other markets. India has also been increasingly successful in luring companies to manufacture their products in India and the government is pinning their hopes on a belated industrial revolution capitalising on their vast 1.2 billion population. The Wall Street Journal picked up on this point and stated that, “For years, growth in India has been fuelled more by domestic demand not, as in China, by manufacturing goods for sale abroad. India hasn’t been rattled as badly as Brazil, Russia or South Africa. Its international reserves are ample and it isn’t highly dependent on foreign capital to fund imports.”

In a deft stroke of timing, Indian Prime Minister Narendra Modi launched the highly enterprising ‘Make in India’ initiative just over a year ago supported with a high profile marketing campaign. It is already yielding positive results, the latest of which was announced just this week with (somewhat ironically) Chinese smartphone manufacturer Gionee committing to making their first handset in India. It is predicted that by 2020, electronics and hardware demand will be worth USD 400 billion in the country with smartphones accounting for almost 40 per cent of that demand.

Modi has also been courting the US market specifically and it appears to be paying off. US Under Secretary of Commerce, Stefan Selig said in a visit to India last month that because the US produces ‘the best manufacturing exports’, India will have ‘no better partner’ in its bid to make the country ‘an elite manufacturing hub on the global stage’.

Selig went on to say that the most important goal in India-US collaboration is to aim for a five-fold increase in the annual bilateral trade from the current USD 100 billion to USD 500 billion. A big ask and some eye-watering numbers although he didn’t mention a time frame.

But not everyone is so enamoured by the claims that India are to emerge from the China crisis as front runners in world trade. An article in the Financial Times pours scorn on the various reports and dismisses the optimism as schadenfreude.

One of main reasons cited by the FT is that India is benefiting in the short term due to the global collapse of commodity prices, particularly oil, which they need to import in vast quantities. The article also goes on to criticise the transport infrastructure in India which is still relatively poor when compared to China and could easily prevent significant investment from wary industrial groups. Their conclusion? “India, in short, does indeed enjoy opportunities arising from China’s problems and the external economic environment, but will not be able to take advantage of them unless it quickly tackles its own domestic challenges.”

So what do you think? Is this the time for the global economic spotlight to shine on India or are they simply not ready for it yet?

Steve Blakeman

Steve Blakeman is the Global Media Lead - Nestlé at Mindshare. Previously, he was the Managing Director - Global Accounts, OMD Europe. Previously, he was the CEO, Asia Pacific – OMD. Prior to that, he was Global Chief Integration Strategy Officer (Asia Pacific) for IPG Mediabrands (Initiative & Universal McCann). He has also had stints as worked as Managing Partner at Omnicom Media Group owned media agency, PHD where he successfully launched their second office in the UK. He began his career at JWT and has over two decades of experience in advertising, media and marketing communications.