India is likely to benefit from a slowdown in investment intentions in China, said SBI Research in its latest report ‘Ecowrap’, adding that it believes the China story may now be facing clear headwinds.
“In fact, we believe the China story may now be facing clear headwinds and India is likely to benefit from such stark realities over the longer term,” SBI Research report titled ‘Frontloading Fed rate hikes and China’s worsening construction bubble: is India enjoying the new ‘TINA’ moment in a checkmate world embracing plus one?’ which is authored by Group Chief Economic Adviser Soumya Kanti Ghosh, said.
Clearly, India seems to be enjoying the “There Is No Alternative” factor, as globally all countries are facing the churn and India seems to be the best-placed jurisdiction in terms of growth and inflation outlook in 2022-23.
“We share such optimism as China is also facing a bleak outlook on the back of a construction sector meltdown,” the report said.
As the population ages, the size of the family will gradually shrink and the demand for housing will eventually decline in the long run in China as seen in Japan, it said.
“The future outlook of the construction sector in China over the long run structural factors such as demographic ageing and rebalancing of the economy will eventually remove a substantial portion of demand.”
Citing global tech major Apple’s recent decision to shift part production of its flagship iPhone 14 model for worldwide shipping from India, with a negligible time lag of a few weeks posts its slated launch on September 7, SBI Research believes it bears testimony to the optimism of India benefiting from China’s slowdown.
It further said the move by the most recognisable face of tech-infused innovation Apple in the last two centuries, that captures aspirations of an upwardly mobile population should open the flood gates for other major conglomerates to follow suit and turn towards India.
“Interestingly, even as China is grappling with a meltdown in the construction sector, housing unit sales in India in H1 2022 (Jan-June) have reached the highest level since H12013. Low-interest rates and comparatively low home prices along with the renewed need for home ownership sparked by the pandemic, have been the primary drivers for this growth.”
India’s housing sales grew 60 per cent on a yearly basis to 158,705 units during the January-June period. The sales were 19 per cent higher than in the second half of 2021.
On the other hand, since the default by the Evergrande group, once hailed as the toast of Chinese infrastructure resurgence, the financial situation of the construction sector in China has steadily moved southwards. The debt default by the Evergrande group spread to other large and mid-tier construction companies.
The situation, the report said, has been compounded by a strict zero-covid policy that has disturbed the normal flow of activity in the construction sector which is almost entirely labour dependent.
“The near-term outlook of the construction sector to remain challenging because of the uncertainties relating to the Evergrande debt problems and downgrades by international credit rating agencies.”
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