China Faces Big Economic Pressure, Trade War & Weak Yuan Hit Growth – What Will Be The Impact On India? Trouble, Opportunity or Both?

China is going through one of its toughest economic times, even worse than the 2008 global recession. Experts say the country’s GDP might fall by 1 to 1.5 per cent. This is mainly because of the ongoing trade war with the United States and the weakening of the Chinese currency, the Yuan.

Yuan at 17-Year Low

On Wednesday, the Chinese Yuan dropped to its lowest level in 17 years. The onshore Yuan reached 7.3498 against the US dollar, which is the weakest since 2007. The offshore Yuan, which is traded in global markets, also fell to the same level.

Why Yuan Is Falling?

This fall in the Yuan is mainly due to new tariffs from the US. Former President Donald Trump had imposed up to 104 per cent tariffs on Chinese goods. These high taxes made Chinese products more expensive in the US, which put pressure on China’s economy and currency.

What China Is Doing About It?

The People’s Bank of China (PBOC) has set the Yuan’s midpoint rate at 7.2066 per dollar, the weakest since September 2023. The Chinese government has also told big state-owned banks to stop buying dollars to prevent further fall in the Yuan. Senior Chinese leaders are expected to meet soon to discuss more ways to support the economy and calm the stock markets.

Good and Bad of a Weak Yuan

A weaker Yuan can help Chinese exports, as their goods become cheaper in foreign markets like the US. But if the Yuan keeps falling too fast, it may lead to capital outflow — where people and companies move their money out of China. This can hurt financial markets.

Falling GDP and Global Impact

According to a report by Capital Economics on CNBC International, if tariffs remain and the Yuan drops to 8 per dollar, China’s exports to the US may fall by half. This could push China’s GDP growth down. To stop this, the Chinese government may need to bring in strong financial support.

Trump’s Currency Manipulation Claims

Donald Trump has accused China of manipulating its currency to reduce the effect of US tariffs. He believes China is doing this on purpose to keep its exports competitive.

Impact on India

India may also feel the heat. A weak Yuan makes Chinese goods cheaper globally, which means Indian exports may look expensive in comparison. Sectors like textiles, electronics, chemicals, and steel may face tough competition from Chinese products.

Trouble for Indian Manufacturing

Indian companies that export goods to the US could see less demand. To compete, they may have to cut prices, which could lower their profits and margins.

Weak Rupee, Expensive Imports

As the US-China tensions rise, the Indian Rupee is weakening too. A weak rupee means India will have to pay more for imports like crude oil (India imports 80 per cent of its oil needs), which can increase inflation. Studying abroad and foreign travel may also become more expensive.

People Turn to Gold

When there is global uncertainty, people often invest in gold and bonds. Gold prices in India are expected to go up due to the current situation.

A Chance for India

There is a silver lining. Some American companies are looking to shift their factories out of China. If India improves its business policies, it could benefit from this China+1 strategy. This may bring new investments and more job opportunities in India.