In China, deflationary pressure will arrest the investment, owing to the lackluster demand. Export demand, which was the base for sparkling growth in Chinese economy, sullied with EU plunging into recession and USA dipping into uncertainty for recovery. Domestic demand failed to respond to Chinese quantitative easing. Foreign investors are giving second thought for investment in China. Much of the expansion programme of foreign investors is shifting to the new strategy of China+1, where foreign investors are looking for expansion in the same field in another country, instead of China.

China was the world’s biggest importer of industrial intermediates and material to support its super growth in the economy. China’s import tumbled with the growth sliding steeply since past two years. In China, import declined by 15 per cent by the end of 2014 than that of the start of the year. Chinese currency renminbi, which appreciated by 20 per cent against US Dollar over a period of two years, is SET to be depreciated by the deflationary pressure. Experts feel China will soon resort to devaluation. But, this time the depreciation of Chinese renminbi will not be benign to recover the lost world of export. The contagion impact of the global slump will shadow the export chances , even though the Chinese currency dips .

Chinese deflation will wobble ASEAN - 10 countries’ growth. China is the biggest importer of ASEAN- 10 countries. Around 12 per cent of the total exports of ASEAN -10 countries goes to China every year. Given the China’s predominant role in imports from ASEAN-10 countries, whose growth are mainly based on export, deflation in China is certain to unleash a contagion impact on ASEAN-10 growth. In contrary, the Chinese deflation will not impart ripple on India, given the fact that China is not the major export destination for Indian goods. Rather, it will turn boon to India as it will leverage more production opportunities for India. India’s growth is trapped by supply constraint against a big demand. Deflation in China will increase the supply potential in India.

China’s deflation can increase India’s opportunities for low cost production. If Chinese renminbi weakens, production cost will decline for the products which are import intensive and depends upon imports from Chinese largely. For instance, China is the biggest exporter of electronic components to India. One-third of total imports of electronic components come from China. The main competitors to China for exporting electronic components to India are Japan and Singapore. Fall in the value of Chinese renminbi will correspondingly help Indian manufacturers to reduce the cost of production of electronic equipments, which will concurrently help in expanding the domestic sales as well as exports.

With the expansion of domestic supply of electronic equipment, import dependency on electronic equipment will reduce. For instance, India largely depends on import for telecommunication equipment. Import of mobile equipment is a case in point. About 80 per cent of mobile phone import comes from China. With the depreciation in Chinese renminbi, components for manufacture of mobile will be available at cheaper price. This will encourage Indian manufacturers to produce low cost mobile in the country and ease the pressure on import.

Deflation in China will also prove boon to Modi’s Make In India campaign. Caught in the crossfire of political acrimony, Modi’s Make in India campaign made a little progress against the high hopes initially. Investment in projects, which is crucial for the success of Make In India, failed to spur. Investors were shying, engulfed by uncertainty over Land Bill and GST. Deflation in China, which will depreciate Chinese renminbi, will prove stimulus to the Indian equipment manufacturers, who are depended on imported materials and component.

Saddled by the sagging domestic demand due to deflation, China is feared to face a hollow economy of investment, similar to Japan. Bolstered by huge cash reserves, Chinese investment is increasing faster in overseas than in domestic economy. China has emerged the third biggest foreign investor in the world in 2013. Soon, Chinese investment abroad will edge out the domestic investment. Chinese overseas investment has always been concentrated in natural resource sourcing countries, such as in Australia and Africa. Now, with the lackluster international demand, coupled with sagging domestic demand despite quantitative easing, China is looking for manufacturing in overseas markets.

India is the target country for Chinese investors. China pledged US $ 20 billion investment in Indian infrastructure development in the next five years. It offered its technical cooperation for high speed trains, bullet trains and development of Indian railway. To make Modi’s dream of “Make in India” a success, China has signed memorandum of understanding with Indian government for setting up 4 industrial town, where the Chinese investors will be promoted for manufacturing.

Time has ripen to capitalize the Chinese deflation and attract investment from China. In the Chinese drive for increased overseas investment, track has changed from resource based sourcing countries to demand base countries. In 2013, USA was the trigger for Chinese buoyancy in overseas investment. USA was the main recipient of Chinese overseas investment, accounting for 16 per cent of the investment. If USA, who has bitter relation as also a cyber threat from China, can welcome Chinese investment, why should not India lay the red carpet for Chinese investment? (IPA Service)