Under the Dragon's Wing

There is a feeling of Deja Vu whenever I read something about China 'helping' the world or the 'world' taking help from China and at the same time ponder over the woes of the world's 'Super Power'. China's decision to stand with Italy at a time when everyone is busy 'downgrading' it (S&P being the latest) and support it both financially and morally(own interests too) has political and economical implications. Also, China's 'no-objection' to the Russian gas pipeline project passing through North Korea shows its endeavour to encourage 'peace' in its adjoining areas. Add to that China's support to the USA borrowing is enough to tell where the real power is shifting, even if slowly.

From the Indian perspective, China is currently our 'Biggest Trade Partner' and it has shown keen interest in investing in India's infrastructure dream. India, which has been recently rated among the 'Least 5 emerging markets' preferred by Fund Managers in a study conducted by BofA-Merrill Lynch. And thanks to the recent spate in 'corruption', investors are not as eager to invest in India. Adding to the woes of the industry are the higher interest costs, all of which lead the Govt. to relax the ECB norms in which for the first time ever, Indian companies were allowed to raise money in Yuan. The fact that this decision has coincided with opening of the first branch of China's largest bank (ICBC) in India is surely a coincidence ;-)

It is going to be an interesting game to watch. Whether China will go the Japan & Europe way, i.e., from being a challenger to the USA to being in debt, or will China turn the game around vis a vis USA did to Britain after the World War?



* China may be in trouble if Italy fails to get out of the mess it is in right now. Also, China's help to Italy isn't enough to significantly help it get out, but it sure is a booster shot.

References:

1. Shamim Adam and Lorenzo Totaro, The World finds an Asian Saviour, Economic Times, 14th September, 2011

2. www.caglecartoons.com/espanol

3. 'ECB norms relaxed, limit raised', Business Standard, 16th September, 2011