What Exactly Is The China Plus One Plan?
By: ISL Team | 2 March, 2023
India's economic growth can benefit from the growing trend of shifting resources away from China and into developing nations. When we were young, our grandparents frequently told us the story of the farmer who put all of his eggs in one basket. If you're not familiar with the tale, it goes something like this:
- A farmer owns a large coop full of hens that each lay one egg. The farmer gathers the eggs as they are being collected and places them in a basket. Nevertheless, when the farmer returns home, he trips and loses all of his valuable eggs.
- The story's moral is that having multiple routes to success is better than relying on just one strategy. Just transferring that knowledge to international trade is what the China Plus One plan does.
- China has been the most popular country for businesses to invest in over the last few decades. Low salaries, a sizable labor force, and commercial accessibility are the causes of this. Several industries set up manufacturing facilities in China or outsourced output to Chinese producers due to these considerations.
- A growing desire to diversify investments into other Asian investment locations has emerged recently. The Philippines, Bangladesh, Thailand, Bangladesh, Vietnam, and India are just a few of the countries that businesses around the world are trying to put their metaphorical eggs in.
Why China Plus One?
Portfolio diversification is not the primary driver of the withdrawal of investments from China. These are:
1.Expenses of Labor- China's wages have risen significantly over the 2010s due to the country's advancing status as a developed economy. Between 2010 and 2016, minimum salaries in some Chinese provinces grew by more than 30%.
- The nominal wage doubled in places like Jiangxi and rose by 63% in Beijing. Companies trying to control their spending during the global recession have a golden opportunity in markets with lower minimum wages, such as Vietnam, Indonesia, and India.
- Several tax benefits for foreign-invested businesses started to expire in 2009;
- The commercial tax system in China is already unified. As a result, the tax burden on companies doing business in the nation has increased.
- China has observed escalating tensions on a variety of global sociopolitical concerns. Some of them include the struggle for Hong Kong's independence, anti-Japanese demonstrations, and clashes in the South China Sea.
- In order to decrease the trade influence held by Chinese goliaths like Huawei, Donald Trump initiated a number of anti-China actions during his time as US President. This has encouraged businesses to withdraw their investments from the nation and diversify into expanding markets.
Sectors in India that will profit from China Plus One
Finding desirable areas for investment is the philosophy behind China Plus One. So, we may predict that international businesses will initially consider India's advantages and try to identify industries that are already poised for rapid growth.
These includes:
1.IT/ITeS- India is the world's centre for outsourcing in the information technology and IT-enabled services industries. Indian firms like TCS, Infosys, and Wipro have developed into industry leaders on a global scale. Historically, China has been the market leader in manufacturing, which has remained stagnant.
- Giants like Apple, OnePlus, Hyundai, and BMW have established manufacturing facilities in India due to Chinese disinvestment. The made in India initiative also advertises India as a desirable investment location.
- India's pharmaceutical sector is valued at 3.5 lakh crore, making it the third-largest manufacturer of pharmaceuticals in the world by volume. India's role as the "world's pharmacy" was recently highlighted as the nation met nearly 70% of the WHO's vaccine requirements in FY 2021–2022.
- India has the most FDA-compliant pharmaceutical plants outside of the United States, and its manufacturing costs are 33% lower. By 2030, the Indian pharmaceutical market is expected to rise to $10 lakh crore.
- The expanding Chinese economy is paving the way for a rise in domestic steel consumption. Some recent policy decisions made by the nation have served as examples of it. All export incentives were discontinued in May 2021. Exporting processed steel goods like hot-rolled coil may also soon be subject to a 10% to 25% tariff.
- In this situation, India will be looked upon by the rest of the globe to meet its metal needs. India's natural resources are sufficient to supply the needs of both the domestic and international metal industries.
- India has also started a Production Linked Incentive program for the specialty steel business. It is expected to attract investments of more than INR 40,000 crores for the following five years.
Conclusion
- Strong economic policy and significant foreign investment have propelled India's economic growth during the past ten years, which is a solid sign of a brighter future for the country.