With the end of the one-child policy, six interest rate cuts and proposed plans for a Hong Kong-Shenzhen link, Chinese policy makers have been using all levers to spur growth. But is it enough to arrest the slowdown in the Chinese economy? Bloomberg TV India caught up with Frederic Neumann, Co-Head of Asia Economics and Managing Director at HSBC, to get a perspective on what these mean for economies like India.

Considering the series of steps taken by China to prevent a hard landing, do you think these can be termed as liberalisation or a sign of desperation?

We now think that China’s policymakers have switched to a more pro-growth stance. We are now seeing more ways of easing coming through.

You just had a reserve ratio requirement (RRR) and interest rate cut coming through. So we are seeing the first signs that China’s economy is starting to respond. Critically, home sales have started to pick up and consumer spending is still reasonably robust. The missing leg of the recovery is construction but that should start to respond as well.

So we are perhaps seeing the very beginning here of the stabilisation in China, at least for the time being.

China is one of the biggest contributors to the MSCI emerging markets index. What is the biggest risk that is coming from China to emerging markets right now?

Well, paradoxically, it is still the US. It could be an upside surprise in the US economy rather than a downside surprise. We think one of the key risks here is that the US treasury yields start to rise sharply. That could lead to another Taper-Tantrum type scenario. And the emerging markets remain vulnerable to capital outflows. So if you see that the 10-year yields start to spike up that’s when you should get worried about Ems, at least in the short term. For the time being gradual Fed moves, a lukewarm US economy is almost the best EMs can hope for because that means the 10-year US rates will remain fairly steady for the time being.

How is India looking in the middle of all this — a bright spot or is the optimism really misplaced?

India is a bright spot. In this story, India is benefitting from the weakening global commodity prices. For example, low oil prices are a big boost to Indian consumers. And you are right that perfect decoupling doesn’t exist. Ultimately, India is still subject to global economic forces but it is less exposed than smaller emerging markets. India is a big internal economy that gives it some resilience. So yes, global turmoil does affect India like any other economy but relatively speaking India is still in a good spot. And we actually think that India would be the best performing fastest growing large emerging market in the world.

Has the pace of reforms been on track?

We would actually agree that realisation is setting in that Prime Minister Narendra Modi cannot pull miracles. The market got carried away with this idea that we will get big bang reforms.

But ultimately the political setup in India is such that the Upper House remains not under the control of the Modi administration and that slows down the pace of reforms.

The Bihar election is important but so will be the subsequent State elections in term of accelerating the reforms process. We think they are doing as much as they can under these very difficult political circumstances. Investors have to be a bit more patient.

Do you think RBI’s lack of aggression is a blessing for the economy?

We actually think it is good that the RBI hasn’t moved too aggressively in cutting rates because remember we are in a very precarious global environment.

If we cut too quickly that could lead to volatility and effect markets. Going a little bit slower assures more stable capital flows and stabilises the currency.

Probably there is more room to cut in the next 18 months or so. But for the time being, it is good to just hold off and wait for the dust globally to settle and see what Fed is up to before delivering more accommodation.

And remember it is not just about monetary policy, there are other policies as well that we should focus on and those are structured reforms which is ultimately what India requires — more infrastructure spending, for example.

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