Speaking this week, Arup Raha, head of APAC Economics at Oxford Economics, highlighted that China possesses ample fiscal capacity to deliver a short-term economic boost.
Raha stressed that China’s challenge lies not in its capacity to provide fiscal support, but in its willingness. He noted that while some stimulus measures, including those introduced earlier this month, have been implemented, the general consensus is that these efforts remain insufficient.
Earlier this month, China announced a 6 trillion-yuan package to support the heavily indebted local government sector, which has been significantly affected by the property market downturn. However, analysts noted that the measures fell short of investor expectations for more comprehensive fiscal stimulus.
Now Raha is fairly optimistic that China will implement a stimulus equivalent “between 1 to 2 to 3 per cent” of gross domestic product (GDP) “sometime around March”, delivering a short-term boost to growth.
“In our belief, there is fiscal space. They have the ability to help the economy, they are waiting for the right time,” he said.
However, Raha cautioned that China continues to grapple with significant structural challenges, which are endangering its long-term growth.
“An important thing to remember is that the structure of the problems means that a longer-term trajectory is for softer growth. Yes, there will be a short-term bounce depending on the policy and that is what we expect to see, the long-term, however, is still caution on China,” he said.
India, on the other hand, is emerging as a global favourite, fuelled by expectations that it will attract foreign direct investment (FDI) originally intended for China.
While he does not disagree with descriptions of India as “a good growth story”, Raha said Oxford Economics disagrees with the “degree” of positive sentiment surrounding India.
“We are not going to disagree with any of this, all of this is true, [and] India is unfolding as a good story. [But] we are going to disagree with that a little bit with a degree of positiveness that is taking place on the India story,” he said.
Raha noted that part of his reservation stems from India not being the primary beneficiary of the “China Plus One” strategy – a concept encouraging investors to diversify operations beyond China to other countries in the region.
According to Statista, gross FDI inflows to India reached US$71 billion in FY2023–24. Meanwhile, preliminary figures from January to October 2024 show that cumulative FDI inflows to China fell by 29.8 per cent, totalling approximately 693 billion yuan (around US$95.6 billion).
Raha emphasised that there are two key factors to consider when investing in India.
“The first is the domestic market, which is probably a good idea – it’s a large domestic market, with lots of people, and it’s growing,” he said.
However, he pointed out that the FDI inflows China attracted at its peak weren’t driven solely by its large domestic market, but also by the country’s capacity to manufacture and export goods.
“And if India is hoping to get anywhere near that [in terms of FDI], there’s a lot in the structure of the economy that doesn’t really align,” he said.
He added, “When you look at India, if the marginal dollar is moving out of China, it’s not – it’s going to India to some extent because of the ‘China Plus One’ strategy, but India is probably number four.”
Raha noted that India currently ranks behind countries like Vietnam, which are benefiting more from the “China Plus One” strategy.
As such, he emphasised, there is a certain amount of caution that needs to be exercised regarding the FDI India can expect.
“We are positive on India, and remain positive, but our caution is on the degree to which people are being overly optimistic,” he said.
“It’s a good growth story but probably not as good as people are hoping it to be.”
