India benefits from confinement in China and tensions with the United States

India and China are doing the splits. On the stock market, the Indian equity index Nifty is moving close to historic peaks, while Chinese equity indices are approaching 10-year lows. The two Asian giants also diverge on the economic outlook front. With the Covid-19 pandemic, the permanent draconian shutdowns imposed by Beijing in China, the “workshop of the planet” (the world’s main manufacturing hub), continue to impact supply chains, so that “the search for an alternative raises more and more concerns. And India appears to be the key candidate to fill this role within the framework of an approach called China + 1 (India playing a role of substitute for China, editor’s note)”, notes Nick Payne, head of investments for the Jupiter Global Emerging Markets fund.

For the expert, the shift of capital and investments from China to India seemed inevitable. “Since the presidency of Donald Trump, Chinese and American nationalisms and the threats associated with them have intensified. This situation has also been exacerbated by the geopolitical events of this year: the war in Ukraine and the Chinese military exercises around Taiwan,” he notes. As a democracy, India, on the other hand, benefits from an attraction that has grown in the face of an increasingly authoritarian and worrying Middle Kingdom (Xi Jinping’s recent speech confirms concerns about the country’s economic growth and the future of Taiwan).

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India, which benefits from a well-educated elite and a solid demographic dynamic, appears to be the main alternative to China, weighed down by a birth deficit and an active population set to decrease dangerously in the medium term. “The demographic changes to come in India – young, urbanized and mobile – compared to China – older, urbanized and with a developed middle class – support an inevitable change in favor of India”, judges Nick Payne.

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While geopolitical tensions are high, “alternative supply chains, especially in (deemed) “friendly” countries (like India, editor’s note), have never been so important for Western companies”, says argue Nick Payne. Apple recently announced that it would manufacture the iPhone 14 in India, with the intention of producing 25% of its devices outside of China by 2025. they set up shop in the country”, while New Delhi has “publicly declared its desire to strengthen the value chain of the manufacturing industry, by offering incentives to manufacturers for setting up production facilities”, notes the expert.

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While China is turning inward, India “has seized the China+1 opportunity with enthusiasm, announcing the Make in India campaign to attract investment. The $10 billion in subsidies for chip manufacturing, for example, has attracted interest from companies ranging from Singapore to Israel,” said Nick Payne, who sees India’s geopolitical advantages as accentuate.

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And international investments in India will be all the more important as the confinements in China and its zero Covid strategy last. For the expert, the current economy of globalization imposes that the cheapest production pole – India – “eventually prevails”.

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