Case study china

Angarika acharekar -1Varsha Araj-3Abhidhyna bhoir 5Grishma deshmukh -7Shankar rao -09Case study Why Latin America Is Feeling the Brunt of Chinas SlowdownLatin American EconomyLatin America and Caribbean consists of forty states. Latin America and the Caribbean when taken as a whole is the worlds fourth largest economy, after the European Union, the United States and China, and above Japan and India.Major economies of Latin America are:BrazilMexicoVenezuelaUruguayChileColombiaPeruArgentina

Latin American economy-2015Growth in Latin America and the Caribbean fell to 0.9 percent in 2015, down from 1.3 percent in 2014. South Americas growth weighed down by lower commodity prices.Brazil is experiencing the most serious economic downturn in more than two decades, with output projected to fall by 1 percent in 2015.Chile, Colombia, and Peru are all facing headwinds from lower commodity export prices and the related cuts to corporate investment.Venezuela slid into recession in early 2014 and is expected to severely contract further in 2015For the currencies of Latin America, 2015 had already been a difficult year. As of mid-August, the Brazil real lost 33% of its value relative to the dollar, the Mexican peso dropped by 19%, the Colombian peso by35%, and the Argentine peso by 10%.

Latin american economy-2015In contrast, growth is projected to be steady in Central America and the Caribbean, and strengthen in Mexico, thanks to lower oil bills for importers and robust economic recovery in the United States.

Growth in 2015 is projected at a solid 4 percent, close to last years number.

In the tourism-dependent Caribbean, growth is projected to improve to 2 percent, in 2015.Mexico, the second largest economy in the region, faces a comparatively favourable outlook. Growth is projected to expand by 3 percent this year.

Chinese economyThe Chinese economy is the worlds second largest economy only behind the US economy and is Asia's largest economy.In 2014 it took over the US economy as the worlds largest economy.Chinas GDP in 2015 is 11.2 trillion US dollars.

Chinese Economy-2015The Chinese economy has effectively decelerated in the past few years.2010-10.4%, 2011-9.3%, 2012-7.7%, 2013-7.7%, 2014-7.4%The International Monetary Fund and UBS estimate that the Chinese economy will grow by 6.8% in 2015.Industrial sector grew 6.1% year-on-year in the first half, down from 6.4% in the first quarter. Investment has been slowing for some years, and is now a smaller fraction of GDP than consumption. Investment efficiency has fallen in recent years on the back of growing excess capacity in real estate and several manufacturing industries

In recent months, the Chinese stock market has been very volatile, with sharp drops in prices since last July. On August 24th, share prices fell 8.5% one of the biggest single day falls. The crash erased US$3.3 trillions in market value of Chinese stocks.The Chinese stock market crashed made ripples in the world stock markets as well.On8 July, the Shanghai Stock Exchange Composite Index (SHCOMP) accumulated a loss of 31.7% from its mid-June peak.Chinese devaluationCauses/reasons of devaluation:Chinese economy is struggling to hit the government 7% growth target.thedevaluation of yuan will help Chinese exporters make their goods cheaper on the world market.this will help china to boost their exports.

Another reason cited by some is a fall in China's currency reserves, which have slumped $315 billion in the year to July to $3.65 trillion, as the central bank kept the exchange rate stable.

China actually wants a stronger currency.

It also wants to boost international use of the yuan for political purposes, as China asserts itself more strongly around the world, especially in asia..

For this china has taken certain measures such as:

The countrys recent campaign to have the yuan join the mostly meaningless IMF reserve currency is one example of China desiring a strong currency.

The countrys central bank purchased the yuan in the currency markets and sold U.S. dollar holdings, a move aimed at stemming capital outflows from China as the yuan was falling.

Impacts of devaluation on world economy:A number of emerging market (EM) currencies, including the rupee, fell by more and their stock markets came under severe strain.

Equity prices in the developed world too saw large declines (the USs Dow Jones Index lost about six per cent after the devaluation) and the commodity markets took yet another hit.The second thing that the devaluation seems to have done is to force investors to revisit their forecasts for both Chinas and global growth going forward.

Certainly, it exposed the vulnerability of a number of the Asian economies that had built up massive stocks of foreign currency debt or had seen their domestic bonds being lapped up by investors in the Western world stuck with extremely low interest rates.Take Indonesia for example: 60 per cent of its rupiah debt is held by foreigners

The fact that a large fraction of emerging-market debt was issued to notoriously fickle portfolio investors rather than more stable holders like banks added to their problems.

According to the IMF, about 16 per cent of foreign holdings of EM government debt on an average were held by foreign non-banks (i.e. foreign asset managers) in 2008.

Imapcts of devaluation on latin American economy:Devaluations will have direct consequences economies undergoing them though not always negative ones. According to Ugarteche, Direct investments in those countries are already declining because most of them involve primary products. And since the prices for commodities have declined so much, it is no longer profitable to invest in new copper mines or new oil wells, for example. Most affected will be the countries that rely heavily on commodity exports such as Chile, Peru, Bolivia, Ecuador and Venezuela.can be something good for exports of manufactured goods and services, for stock markets and for real estate markets because they can lower inflated prices. a significant increase in inflation, and a loss of purchasing power which will lead to a decline in internal demand. But imports will become more expensive, which will reduce demand for foreign products and may increase domestic demand. Thus, higher exports and lower imports should increase overall demand and GDP.

Measures to be taken by Latin American economies:Overwhelmingly, one must look for the sort of political stability that generates security for the international investor and, as a result, for the domestic ones. With respect to monetary policies, central banks can contain devaluation through an increase in domestic interest rates combined with interveIt is critical that economic authorities guarantee the solidity of public finances and that they maintain under control the vulnerabilities of the financial sector, given that reduced profits, more difficult conditions for financing, and the strengthening of the dollar are putting to the test the resistance capacity of the debtorsntions in the foreign exchange markets. that authorities should do everything possible to prevent inflation rates from reaching uncontrollable levels, and to assure themselves that the economy can continue to grow in a sustained way, without generating too much social inequality. Governments must make labor markets more flexible, while searching for productivity growth, because under such [unfortunate] conditions, unemployment often grows as a result of the economic imbalances that are generated. THANK YOU