China and India focus their attention to economic growth

China declares in favour of strengthening the international co-operation for counteracting the financial crisis, stated recently a diplomacy statesman from Beijing when he was asked if his country plans to take part at the world financial summit, proposed by USA. “China will continue, from constructive positions the dialogue and co-operation with other states in this matter”, he added. In the same time, India, other big Asian state, confronts with a severe lack of liquidity.

China’s economy, whose development maintained at high quotes the growth rhythm of the world GDP, has slowed down up to a record level in the last five years.  According to the official statistics, in the first quarter of the current year, this index has increased with 9%, under the anticipations of the experts, that have estimated 9,7%. Due to the results, the international community fears that this deceleration of China, which in 2007 recorded a development of over 11%, will complicate more the world economic situation. The decline of the macroeconomic indexes, is first of all, the direct effect of reducing the exports, whose weight in the total volume of GDP has halved, practically till 1,2%, directing the commercial excess to touch the record of $29.3 billion. On the other hand, it has diminished the industrial production:  from16.2% on January to only 11.4% on September, the lowest value since 2003.  The only good news – decrease of inflation (4,8% on September against 8,7% on February). “The economical situation of China is running down.  There is no doubt about it”, Kerry Brown, from Chatham House, states. It seems that the inflation was taken under control, but the dependence of the Chinese exports upon the American market represents a great lack in the given context”, he adds.

In tandem

The pessimism of the analysts is supported by the decrease of the real estate market from China. The “cooling” process has also touched other significant strategic domains. During the last three months, the price for steel has dropped with almost 20%, fact that directed to the shut down of a significant number of small foundries. Moreover, the analysts from China International Capital Corporation consider that without a solid financial support from the state, the GDP rhythm of growth could fall towards 7,3%. It’s true, not all the economists tend to see things in darken colors. Linda Yue, from the Oxford University agrees that the economic rhythm can fall up to 8%, but she reminds that this figure was evoked by the Prime-Minister Wen Jiabao.

However there are being imposed some measures, especially that, according to the occidental experts, any acceleration of the tendency of slowing down the economic rhythm will affect the entire world economy.  Moreover, Beijing has already announced its intention of changing the value added tax for encouraging the exports, measure applied in tandem with an increase of the imports for not extending the commercial surplus.  The government will also support the real estate sector and will encourage the investments with fixed capital, that however have recorded a growth of 27,0% since the beginning of the year in comparison with  26,3% in the first semester. “Our economy remains strong and capable to defend against international risks”, the Prime Minister Wen Jiabao stated, in conditions in which since October 2007, the Stock Exchange from Shanghai has lost 70%.

The roots of distrust

Measures of protection against the financial crisis were adopted also by India, whose banking system, considered quite solid, can be drawn in the whirlpool of the world instability by the deficit of liquidity, as also by the decrease of trust given by the deponents, investors and managers. The Ministry of Finance, Palaniappan Chidambaram, tries desperately to calm down the markets. “The roots of distrust lie in the liquidity crisis. But our economy didn’t suffer dramatic changes”, he said, announcing new measures for sustaining the loaning flow. At the end of last week, the Central Bank of India has dropped the reference interest from 9% down to 7,5%. Not being very connected with the world financial system, India, where the banks are strictly monitored by the state and the currency is only partially convertible, it didn’t suffer much due to the world monetary instability. All these facts determined the president of the central bank of the country, Duvuri Subarao to assert that India “can avoid the most unpleasant consequences”. Despite all these the fear that the crisis abroad could invade the credit markets from India becomes more and more obvious. Despite the infusions of capital from the Central Bank, the banking institutions have given up to grant loans one to another. On their turn, the customers fear for their accounts and the companies find more and more difficult understanding for obtaining the needed financial means.

Real estate and IT

“We are following closely the situation, and if is necessary will be able to react promptly”, the Prime-Minister Chidambaram stated. The cabinet managed by him is already working to a new package of anti-crisis measures.  His counselor on economic problems evokes and insists upon the opportunity of changing the financial policy. “We have to drop out the fight against inflation for encouraging the strengthening of growth”, he explains.  At the moment, the inflation is at the level of 11.8%, but it has reduced because the oil’s cheapen.  This fact was also observed in economy. The industrial production has recorded on August a plus of only 1,3%. According to the forecast of the International Monetary Fund, the Indian economy will face in 2009, a slow down of the rhythm from 7,9% at the moment to 6,9%. Four years ago, this index didn’t exceed 9%. But till the calm down of the Indian financial markets there is a long way. Anyway, the state is protected by a sore end through the currency reserves figured to $248 billion and by the currency control. For covering the deficit of the commercial balance, India needs significant and constant capital flows, which at the moment are falling because of the liquidity crisis. During the current year, the foreign investors have withdrawn from the securities market from India over $10 billion.  One of the most affected sectors remains, also in case of India, the real estate market, several companies of construction finding themselves out of money.  The problems have appeared also in the IT domain, directed mainly towards USA.

Friends jump at need!

The agency Standard&Poor’s has dropped the credit rating of Pakistan till CCC+, the last note before the bankruptcy. From the beginning of the year, the course of the national currency has lost 20%, and the inflation jumped to 25%. The volume of the international currency reserves has reduced with 67% - up to five billion dollars, in terms in which the immediate debts of Pakistan exceed $10 billion.  Different said, in order to avoid a catastrophe, Islamabad needs right away the money. Where can you find them when the liquidity crisis practically shuts down all the doors towards the monetary boxes? China, whose international money box doesn’t seem to feel the “monetary” difficulties of the moment, is considered a sure source.  Not by surprise the new President of Pakistan, after the victory obtained in the elections of this summer, has organized his first trip overboard to Beijing. In the capital city of the great neighbor he signed several documents, and the press has written it’s about a loan of 500 million granted by China to the new management from Islamabad. It was said that Beijing is ready to increase the value up to two billion. Another source is Russia, ready for this type of movement with long run on political plan.  

Uninspired operations

The Citic Pacific Ltd shares, subsidiary from Hong Kong of the biggest national companies of investments from China,  Citic Group, has dropped on Tuesday with 55% due to the statements given by the management of the bank about the possible losses of billions as a result of the unlucky currency operations with the Australian dollar. One of the top-managers of Citic Pacific has played uninspired against the American currency, the consequences being estimated to almost $2 billion. “In terms of a severe deficit of liquidities, the only hope for Citic Pacific to avoid the bankruptcy is represented by receiving a credit from the mother-company, estimated Liu Yang, from Atlantis Investment Management.