Battered Chinese Economy: A Shot In Arm For India To Accelerate Stake In Global Supply Chain Market – Analysis
Numerous arguments were spun in Chinese media on India’s sparkling growth in the bounce back recovery, which is expected to excel China’s growth in 2022. Chinese ascendency in global supply chain prominence is in retreat and throws challenges to India and other Asian countries to find space in global workshop for supply chain. Nevertheless, as compared to other Asian nations, India’s challenge raised grave concern and threat to China in Chinese media.
The recent decision of Apple of USA decoupling from China and shifting to India hit the headline of Chinese media. It triggered concern over China’s hegemony in global supply chain workshop, to be challenged by India. According to Global Times, a widely read Chinese media outlet, “the Western media have long been hyping up the transfer of production lines by foreign companies such as Apple from China, the global manufacturing center, to countries such as India. Such media reports indicate that India could one day replace China as the world’s largest mobile phone manufacturer”.
China has been the global powerhouse for supply chain manufacturing. Given the rise in global integration in manufacturing, nearly 70 percent of international trade pertains to global supply chain (GVC) , according to OECD. China emerged the global hub for GVC. Nearly half of China’s exports involves GVC .
But, Chinese prominence in global GVC turned dubious, given the Chinese growth slipping into deceleration during the lock down period and zero COVID policy. Chinese Politburo targeted China’s growth by 5.5 percent in 2022, though some members murmured this growth would be a difficult task. The futurists forecast that Chinese growth is likely to plummet further in the long run. According to Lowly Institute (an Australia Think Tank), the average annual growth of Chinese economy will slow down to 3 percent by 2030, 2 percent by 2040 , averaging 2-3 percent overall growth by 2050.
Eventually, these led to a major shift of foreign firms to China+1 strategy for supply chain manufacturing. The upshot of the situation is that China was losing significance for global workshop and was facing increasingly stiff competition from emerging and newly industrial nations, particularly in Asia. According to Asia Briefing survey, 7 countries have emerged the potential alternatives to China. They are Vietnam, India, Cambodia, Thailand, Indonesia, Malaysia and Philippines.
According to Chinese analysts, relocation of firms mostly related to technology intensive industries. This led to downturn in production capacity in China. For example, China, which accounted for 75 percent of world production of mobile phones in 2016, was dragged down to 67 percent in 2021. The reason for the downturn in mobile phone production was relocation of production centre to Vietnam and India.
In the trajectory of relocation of factories, Vietnam emerged the biggest beneficiary. Vietnam’s exports of electronic goods to the world surged by over 31 percent in 2021over 2019 – the period during which decoupling from China intensified. The major surge in exports were telecommunication equipments.
Alongside, India also emerged a competitive alternative destination to China. The supply chain of global brands like Samsung and Apple, as well as Chinese companies like Oppo, Vivo, Xiami, Haier and others like Lenevo, TCL made their big stakes in India.
Apple’s decision of shifting production base in India is an worth case to signify India’s challenge to China. Chinese media unfolded its concern over Apple’s expansion in India . Global Times – an official Chinese media- expressed displeasure on Apple’s dependency on India , while reducing dependency on its traditional base in China. It lamented “ US tech company is preparing to recalibrate its iPhone 14 production base between China and India”. The Wall Street Journal decoded company’s planning for boosting production outside its traditional base in China, to reduce dependency. Apple is on the uptrend for hatching global hegemony in mobile phone manufacturing. It’s share in the global manufacturing grew from 1.3 percent in 2020 to 3.1 percent in 2021 and is expected to reach 5-7 percent in 2022.
This resulted dichotomy between India and Vietnam for challenging China in the transition of alternative global supply chain manufacturing. According to some Chinese analysts, Vietnam is not a threat and rather it is a complimentary. It is considered an extension of China supply chain, owing to small domestic market and having similar political regime. In contrast, India has a large domestic market and threatens China’s supply chain market. Fears shrouded over China loosing supply chain market in a stiff completion from India.
India turned a major bet to China after it emerged faster in growth , overshadowing China. It is targeted to 7-8 percent growth in 2021-22 against China growth by 5.5 percent. India excels China from various angles, such as, in terms of benefits from demographic advantages of large working population, coupled with IT talents, large middle class market and propensity to Europe and American languages. Given these, there is a viewpoint in China that even though Vietnam is a prickly pain for short term, India is a bigger threat to China in long term.
Added to these, the recent India’s policy of surveillance on security concern and ripping of automatic approval of Chinese investment, hit the Chinese headlines for debilitating Chinese prominence in supply chain. India is one of the major importers of supply chain from China.