Are India and China Experiencing a Role Reversal in Their Economies?
According to Hayman Capital Management’s CIO Kyle Bass, India is expected to become the world’s third-largest economy by 2030, with China keeping a hold on second place, as per recent CNBC interview.
China, the world’s second-largest economy, is currently facing numerous headwinds that could spell long-term trouble.
China Evergrande Group, a troubled real estate developer, served as a stark reminder of Beijing’s debt challenges for global and local financial markets. The group, tagged as the world’s most indebted company with roughly $330 billion in liabilities, faced liquidation following a Hong Kong court order. The entity had failed to submit resolutions, provide efficient communications, or complete restructuring efforts. Consequently, Evergrande’s shares halted trading after collapsing more than 20 percent due to the high court’s ruling.
Meanwhile, the broader financial markets have been in tumult. Over the last year, the Shanghai Composite Index has tumbled around 15 percent, and the Hang Seng has plummeted close to 30 percent. Approximately $6 trillion has been wiped off Chinese and Hong Kong stock markets since reaching their peak three years ago. Authorities, in response to this, have introduced new rules to limit short selling on specific securities.
However, this volatility is just one indication of a meagerly performing economy. Data published throughout January showed a sluggish landscape for China’s economy, which is expected to overtake the United States. China has slipped into deflation amid sagging domestic demand, and exports have been lackluster. Unemployment rates are inching higher, and GDP growth has been weaker than expected. Manufacturing activity has also contracted for nine of the last 10 months.
While the International Monetary Fund (IMF) has projected China’s economy to grow by 4.6 percent in 2024 and 4.1 percent in 2025, some experts are bracing for additional state support. However, the nation’s mountainous debt, with a debt-to-GDP ratio reaching an all-time high of 286 percent last year, is raising concerns. Investors, in particular, are wary about increasing risks related to the lower medium-term economic growth and the ongoing downsizing of the Chinese property sector.
On the other hand, India is projected to grow at or above 7 percent in 2024 and 2025, and become the world’s third-largest economy by 2027, with a GDP of $5 trillion, according to India’s Ministry of Finance. Reserve Bank of India Chief Shaktikanta Das also endorsed the government’s growth forecast, making reference to the strong momentum of economic activity seen in the country. This optimism is largely rooted in strong domestic demand, mainly private consumption and investment.
Economists assert that India’s meteoric ascent reflects what China experienced in the late 1990s and early 2000s. This sentiment is reinforced by a robust factory activity, exceeding pre-pandemic export levels, a decade of ballooning productivity, and substantial investments. Whereas China has been experiencing higher capital outflows amid geopolitical concerns and trade strife, India is poised to emerge as the fastest growing major economy in the next three years, as per S&P Global. Additionally, JPMorgan holds a favorable view of India’s growth prospects owing to the nation’s demographic advantage.
HSBC economists do not anticipate India replacing China as the global economic growth engine despite growing optimism. The bank argues that India’s economy runs on too few cylinders and that China’s economic importance is simply too large for India to eclipse it.
Despite the optimism about the rise of India, China’s GDP currently stands at roughly $17 trillion, meaning India has a long way to go. Nonetheless, experts believe there is an opportunity for India to surpass other leading countries in the future.
