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 closures 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 is a growing concern. And India appears to be the key candidate to fill this role within the framework of an approach dubbed China + 1 (India playing a role of substitute for China, editor’s note)”, replacing Nick Payne, head of investments for Jupiter Global Emerging Markets fund.

For the expert, the shift of capital and investments from China to India seems inevitable. “Since Donald Trump’s presidency, Chinese and American nationalisms and associated threats 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 worried 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 coming demographic changes in India – young, urbanized and mobile – compared to China – older, urbanized and with a developed middle class – will benefit from an inevitable shift in India’s favor”, judges Nick Payne. .

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While geopolitical tensions are high, “alternative supply chains, especially in countries (deemed) “friendly” (like India, editor’s note), have never been so important for Western companies, “says worth Nick Payne. Apple recently announced that it is manufacturing the iPhone 14 in India, with plans to produce 25% of its devices outside of China by 2025. India has also “courted manufacturing companies to settling 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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As China responds to itself, India “has embraced the China+1 opportunity with enthusiasm, announcing the Make in India campaign to attract investment. The $10 billion in grants for the manufacture of chips, for example, have provoked the interest of companies ranging from Singapore to Israel”, underlines Nick Payne, for whom the geopolitical advantages of India are only accentuated.

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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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