China is one of the world’s largest economies. It is called the manufacturer to the world. It has come to dominate the international scene with its vast manufacturing prowess.
It manufactures almost everything and ships is almost anywhere. Through this focus on exports, it has become the dominant exporter of manufactured goods to the world.
The focus on manufacturing comes with its own downsides too. When the world economy undergoes a slowdown, exports fall in China. As a result, factories that were running 24/7 have to cut down on production. This leads to job losses and unemployment. China can not afford to have job losses and unemployment.
It faces other international headwinds too, stiffer tariff for its exports, anti-dumping duties and many other policy changes done by importers impact its exports.
With the coming of Donald Trump, who won the US Presidential elections on the slogan of ‘Make America Great Again’ (MAGA), Chinese economy faces new challenges. Trump wants to impose still higher duties on Chinese imports. Through this, he wants to bring manufacturing back to America.
Faced with this challenge, China is already preparing for what fate awaits its economy.
Over the last several months, China has pumped in massive amounts of money as cash subsidy to its own people. The amounts range in trillions of US Dollars. It knows that the economic engines can not be allowed to slow down or stop, thus it is preparing to enable its own citizens to go on a consumption spree.
At last count, Chinese government had already released 3 Trillion US Dollars equivalent cash to its own citizens. This translates to around 3000 Billion USD x 8400 Crores (INR), giving a grand injection of 2,52,00,000 (Two Hundred and Fifty Two Thousand Crore Crores).
In comparison, India’s total foreign reserve stands at about 640 Billion or 53,76,000 (Fifty Three Lakh Seventy Six Thousand Crores).
That is what China is doing faced with a manufacturing glut and a possible export slowdown.
Compare that with India.
India too faces a slowing economy. Consumption is down, even fast moving consumer goods are facing headwinds. Automobile sector is down. In general the economy is performing badly and as per government’s own estimates (which are almost always exuberant) the year is going to see 6.5% growth. State Bank of India has pegged it even lower at 6.4%. In reality, the growth may not even be 4 to 5%.
How is the government of India reacting to this slowdown?
It is taxing its own people to death. It has expanded the scope of applicability of GST to many more items than before, raised the taxes on many items and continues to extract as much as possible from the citizens.
Therefore, one can say that either the Chinese have got it wrong or the Indian Government has got it wrong. Both can’t be right. China is giving money to its citizens, India is taking away as much money as possible from its citizens.
Winston Churchill had once said that ‘For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.‘
It is said that those who forget history are condemned to repeat it. Indian citizens will learn it the hard way that its government has failed them
