The socialist market economy of China was transformed into a market-based economy as a result of reforms initiated in 1978.

It is now the world’s largest manufacturing economy and exporter of goods and also the world’s fastest- growing consumer market and second-largest importer of goods. The country has an estimated $23tr worth of natural resources, 90pc of which are coal and rare earth metals.

China has become a hub of global supply chains and a magnet for commodity exports. It is a key trading partner for over 100 countries which represent more than 80pc of global GDP.

According to the IMF, it is the world’s second largest economy by nominal GDP and the world’s largest economy by purchasing power parity. Its massive labour force has enabled it to become the globe’s manufacturing hub, creating massive domestic economic growth.

China’s economy performed well in 2017 as the pace of growth picked up for the first time in seven years, registering seven per cent growth and surpassing 6.5pc target set by the government. Personal consumption and foreign trade supported the growth.

The IMF forecasts growth to edge down to 6.5pc in 2018, in line with the government growth target. Growth is expected to cool this year as the Chinese government appears to be focusing on slower but more sustainable consumption-based growth.

Despite slight moderation in growth amid efforts to deleverage, contain debt and financial risks, China is seen on course to overtake the euro area in the size of its economy this year as its GDP is forecast to reach about $13tr in 2018, beating the $12.8tr combined total of the 19 euro area countries, according to data compiled by Bloomberg.

China alone is still providing one-third of the global growth. Experts at Gavekal Research are of the opinion that 6.5pc growth target could still be achieved but at a higher cost. Other forecasts are for 6.2pc and 6.3pc growth.

However, China faces numerous challenges. The government has relied heavily on debt-fuelled investment and low cost exports to drive its growth of the past four decades. The reliance on borrowing has led to pressing political concerns about debt risk.

Its debt has risen significantly in recent years, with worrying numbers around corporate and household debt and non-performing bank loans. The country’s debt had ballooned and is now equivalent to 234pc of GDP.

At the same time, credit growth has outpaced GDP growth, leading to a large credit overhang. The credit-to-GDP ratio is very high by international standards. Meanwhile, the prospect of a trade war between the world’s two biggest economies has increased after the US President has introduced punitive tariffs on steel and aluminium imports.

The president has announced a 25pc levy on steel and 10pc on aluminium imports needed to counter overseas operators, especially from China, who are undercutting US companies and destroying American jobs.

The President has signed a memorandum that could impose tariffs on up to $77bn of imports from China. This caused stock markets to fall sharply as investors feared a trade-war. China has retaliated against Donald Trump’s decision to impose tariffs by signalling that it would have to make a justified and necessary response by targeting US goods like soybeans, airplanes, cars and cotton with higher duties.

The government could also target US technology companies that manufacture products in China. US wants China to take action to lower the $486bn trade deficit that the US is running with China. The Chinese commerce minister has warned that any trade war between the world’s two big economies will only bring disaster to the global economy.

India

India’s diverse economy depends largely on the services sector, which contributes 51 per cent to the Gross Domestic Product and employs less than one-third of the labour-force.

Its industry employs 17pc of the labour force and accounts for 27pc of GDP, while agriculture, with slightly less than half of the labour force, contributes 22pc to the GDP.

Despite having one of the fastest-growing economies in the world, India has the highest number of people living below the poverty line, which remains a significant issue for the government.

Though poverty in the country is slowly diminishing, 21.9pc of the population still earns less than $1.90 per day. According to the World Bank’s revised estimates, some 180 million people live below the international poverty line.

Up to 670m Indians, who comprise the poorest half of the population, saw just one percent increase in their wealth while 58pc of national income went to richest one per cent last year. India is now developing into an open-market economy and is considered a newly industrialised country.

In recent years the government has placed greater emphasis on private enterprise to stimulate growth and modernisation. Reflecting this policy shift, public enterprises now accounts for only about seven per cent of the GDP.

Disruptions caused by two structural changes- demonetisation and the destocking ahead of the GST implementation–2017 saw its GDP growth slumping to a three-year-low at 6.6pc.

Revival in rural demand, increased infrastructure spending is likely to drive India’s growth in 2018, even though increasing debt and trade protectionism could pose a challenge. Forecasts point to a faster-than-expected growth against the backdrop of increasing crude oil prices and volatile market conditions.

The improvement in domestic conditions is a positive sign that growth is picking up and will continue to maintain strong momentum in 2018.

According to the World Bank, India requires a decisive structural reform momentum to stimulate investment and export growth while maintaining macroeconomic stability to sustain an eight per cent GDP growth in two years’ time.

Published in Dawn, The Business and Finance Weekly, March 26th, 2018