As the China is much more entrenched with the global financial and commodity markets, slowdown in this second largest economy of the world, can cause much more spiral than Greece crisis and its collateral impact
Since China is the second largest trading partner for both Europe and the United States, it goes without saying that any issue with the health of the Chinese economy is not good news for rest of the world. The global commodity firms in steel, copper, iron ore, crude oil have seen a sharp erosion in their margins and the revenues, the paper noted with concern.
The chamber prepared its paper mapping the global financial situation based on inputs from its overseas offices in the US, Europe and South East Asia.
It said the spiral impact is immediately seen in the overall capital expenditures by the global corporations and an investment worth several hundred billions is drying in the commodity space. On the other hand, servicing existing debt has become an issue along with the collateral damages being felt on the corporations, both in the public and private sector, engaged in infrastructure like ports, shipping, railways and roads.
India, too is affected as some of the big firms which had announced mega investments in the steel, aluminium, copper and other metals, are revisiting their plans in the wake of sharp erosion in demand, prices and profitability. A major Indian shipping company has gone net worth negative and declared itself a sick firm, the ASSOCHAM paper said. The impact would also be clearly visible in the corporate earnings for the first quarter of the current fiscal.
It said such a dismal scenario would get worse , if China finds itself into further problems. There would also be impact on the financial markets if any more instability is seen in the Chinese markets as was witnessed for a few weeks since June 12 until the government stepped in major controls, chamber Secretary General Mr D S Rawat said.
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The severity of the domino, if it takes place, could be gauged by the fact that U.S. banks have nearly ten times as much exposure to China than Greece. The ASSOCHAM paper quoted Kathleen Brooks, a research director for FOREX.com, stating that sentiment could suffer across the Asia region and further afield if China is unable to stop the bleeding in its stock market.
China is a massive consumer of commodities as well, Oil prices dropped and while many were quick to blame Greece and the drop in the euro, that doesn't make that much sense when you think about it. Of course, we cannot ignore Greece entirely but we should not get too caught up with the latest headlines from Europe either. China matters a lot more to the global economy being the home of some of the leading banks globally and being the trade hub for US & EU.
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