Latest news with #KaushikBasu
Mint
3 days ago
- Business
- Mint
Ajit Ranade: The success of ‘Made in China 2025' alarmed the West
An after-effect of the global financial crisis of 2008 was that by the following year, China's exports dropped by 16%. This led to widespread factory closures and mass layoffs in provinces like Guangdong. China's prosperity had been built on the large-scale export of low-cost, labour-intensive manufactured goods for three decades. The crisis exposed the vulnerability of that strategy and overdependence on Western markets. Also, China was stuck in low-end assembly roles in global supply chains, with low value addition. Undoubtedly, its economic reforms from 1978 onwards made it possible for 300 million workers to move from rural and agricultural livelihoods to higher paying industrial and urban jobs. But 2008 was a rude reminder of several weaknesses. Real wages had not grown much. As a result, consumption spending was stuck at just 35% of GDP even as late as 2009. Domestic demand could not pick up the slack caused by falling external demand. Also Read: Kaushik Basu: Redefine prosperity; GDP tunnel-vision could prove costly In 2009, Chinese policymakers responded with a 4 trillion renminbi stimulus, with big spending on infrastructure. This restored growth to 10% next year, but also led to industrial overcapacity in sectors like steel and cement, and reinforced the dominance of state-led investment. Consumption was not picking up even as deflationary pressures were building, while state-owned enterprises were struggling, plagued by overcapacity. This in turn caused a debt explosion. China's debt has grown from 150% of GDP in 2008 to about 280% now. A real estate over-build-up made a crisis in this sector imminent, as was later demonstrated by the fall of Evergrande. This was the backdrop to Beijing's launch of 'Made in China 2025' (MIC25) ten years ago. By 2013, the new regime under President Xi Jinping had recognized the need for supply-side reforms by cutting overcapacity, addressing the consumption-export imbalance and reviving industrial growth with innovation and value addition. Also Read: China began de-risking its economy well before Trump's trade fury Partly inspired by Germany's Industrie 4.0, MIC25 aimed to upgrade Chinese manufacturing to high value addition and less dependence on foreign technology. It also aimed for technological self-sufficiency and domination of emerging high-tech sectors, and sought to promote indigenous innovation and green as well as smart manufacturing. It targeted 10 sectors, including aerospace, advanced rail-transport equipment and new energy vehicles, and aimed to raise the domestic content in high-tech industries to 70%. This industrial policy was focused on picking champions, channelling vast state subsidies, and guiding credit and support to chosen sectors from preferential government procurement. The West was unhappy, viewing MIC25 as mercantilist and violative of WTO norms as well as non-market driven. There were concerns about forced technology transfer and cyber theft. Unsurprisingly, when US President Donald Trump assumed office for his first term, he slapped punitive duties, put in export controls and investment screening. The EU followed suit in trying to decouple from China. Also Read: The time is right for a reset of India's trade ties with China Fast forward to 2025. There are now several independent assessments of MIC25. Of these, two major studies were commissioned by the American Chamber and European Chamber of Commerce. What emerges is that MIC25 has been a success and has led to a spree of backlash actions, such as this year's Trump tariffs. China now accounts for 30% of value added in global manufacturing, ahead of the US, which accounts for 16%. China's BYD dominates electric vehicles (EVs), while Huawei leapt ahead in 5G telecom and AI hardware. China is a leader in shipbuilding, batteries, solar power, turbines, drones, consumer electronics and pharmaceutical ingredients. DeepSeek's AI leap was a wake-up call to those enamoured by OpenAI's ChatGPT. The recent price slash by BYD shook the global EV industry. It sells more vehicles than Tesla in the EU despite higher tariffs. China now has more robots per 10,000 workers than Germany, according to a Financial Times report. Import dependency has reduced and foreign companies are incentivized to localize production. EVs, high speed rail, industrial robots, 5G and renewable energy are China's success stories, while it faces challenges in semiconductors, aerospace and biomedicine. The FT report notes that even now, Chinese aircraft are simply 'western aircraft with Chinese metal on them." Other risks are its huge EV and solar overcapacity, apart from the global backlash of tariffs and sanctions led by US actions. Hence, MIC25 has been repositioned and folded into a broader framework called 'new quality productive forces." Also Read: How Trumpian volatility is forcing policy changes in China At the rate it is going, China's share of valued addition in manufacturing could go up to 50% in the next 5-10 years. How this Cold War 2.0, which may see the US decouple from China, plays out is anybody's guess. China is also investing in trying to win the war of narratives and perception by describing its alternate development path. But initiatives like its Belt and Road plan have only met with limited success. China also cannot ignore some core and persistent vulnerabilities, including low domestic consumption demand, an ageing demography as well as a peaking labour force, rising unemployment, slowing growth and ballooning debt. Added to this is its increased friction with the Western world and barriers denying its exports access to markets in the West. The success of MIC25 cannot hide these related risks and challenges. The author is senior fellow with Pune International Centre.
Mint
3 days ago
- Business
- Mint
India's GDP: A key test lies ahead
The fiscal policy-led rescue of India's economy from the covid shock has been impressive, even though its pace of expansion slowed to 6.5% in 2024-25, as provisional data shows, after a three-year run averaging above 8.8%. Last year's rate of GDP growth dropped below the path demanded by Viksit Bharat, but the second half's acceleration reveals a grip on its gear-stick held by the government through public expenditure. How long, though, will state support last? Also Read: Kaushik Basu: Redefine prosperity; GDP tunnel-vision could prove costly Last year's fiscal gap was under 4.8% and this year's 4.4% goal is achievable. After that, public debt will be adopted as the official gauge to constrain risky over-spending. Also Read: It's time to lay the great Indian GDP controversy to rest Clearly, India's Fiscal Responsibility and Budget Management (FRBM) law needs rework in the light of lessons from our economic recovery. How 2025-26 turns out may be instructive. If inflation stays subdued at around 4%, the central bank's aim, even with the fiscal deficit exceeding the FRBM's 3% cap, it'll be a relief. Also Read: The state of India's economy is not as bright as GDP data may suggest What happens to price stability if private investment and consumption regain full strength, however, remains untested. It's a key test, as faster growth and lower debt require both these to form a robust mutually reinforcing loop.
Mint
19-05-2025
- Business
- Mint
America's credit rating slip: How serious?
As political rhetoric gives way to reality, what is emerging isn't looking too great for America. On Friday, it was stripped of the last of its top-notch sovereign ratings by big global credit-risk tracking agencies, with Moody's downgrading its debt to Aa1 from Aaa. Standard & Poor's had notched it down in 2011 and Fitch Ratings in 2023. Also Read: Kaushik Basu: America's capacity for self-harm is breathtaking In effect, US debt is no longer the gold standard, though America's unique position as the world's reserve-currency issuer still affords it the exorbitant privilege of borrowing cheaply. Also Read: Barry Eichengreen: The end of American exceptionalism? This ability, however, may weaken if the US doesn't find fiscal solutions to curtail its public debt. Global confidence in US economic policies has been rattled on many fronts lately. Also Read: Barry Eichengreen: The sterling's past may offer clues to the dollar's future Over the weekend, supermarket chain Walmart was asked by US President Donald Trump to 'eat the tariffs" imposed by his administration, instead of hiking prices. This attempt at interfering with the decisions of a private profit-oriented company suggests a preference for micro-management that's unlikely to work in the interests of America Inc. As seen in the past, rating agencies might be behind the curve—this time on assessing risks borne by US capitalism if Trump's new policy paradigm takes effect.
