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How India can gain from Asian countries’ quest to redirect factories from China

Hahina has made headlines with news of its slow growth after a decade of gradual slowdown. Part of what’s behind these headlines is the large number of factories and supply chain reliance away from China. But the scale and depth of China’s 40 years of success in manufacturing and trade are fueled by new winds blowing across corporate boards around the world, boosting China’s status as the “workshop of the world” and a major trading powerhouse. is unlikely to undermine

Still, it’s important to note how industrial policy has made a dramatic comeback as countries race to keep companies out of China.

The Tokyo Metropolitan Government pays Japanese companies to move their factories from China and elsewhere to Japan. Last summer, it also introduced a new economic security law covering 14 sectors considered part of social infrastructure. South Korea and Taiwan have similar “reshoring” programs, primarily aimed at China. As such, her three most industrialized countries in Asia offer incentives for companies to leave China and return to their homes.

Tokyo’s reshoring budget is $2.5 billion. About 250 Japanese companies are reported to have pulled out of China in recent years, and the trend is accelerating. The move is not only limited to Japan, but also extends to other countries in the region.

For example, the Asahi Shimbun reported that last year alone, 135 companies moved out of China and relocated factories making semiconductors, automobiles, electronics and clothing. Sony moved some of its smartphone production to Thailand, and saw a surge in foreign investment in 2021 (some of it from the Chinese company itself).

Korean companies are also doing not only reshoring but also “friend shoring”. Samsung chose Vietnam, Google was drawn to produce his Pixel phones, Apple his MacBooks and his iPhones, Nike and Adidas.

Malaysia has benefited from 32 projects relocated from China. In response to US President Joe Biden’s announcement of incentives to outperform Asian industrial giants, Hyundai announced plans to build an electric car and battery factory in Georgia, while LG partnered with Honda to open a new plant in Ohio. Built a new battery factory.

Also Read: India’s green GDP is improving, but government faces tough choices to ensure environmental protection

HaHina is not helping its aggressive behavior. Reflecting political tensions, (two-way) visa bans hit both Japan and South Korea. I felt the heat of the dragon’s breath.

Not surprisingly, global companies are aware of the rising political risks and complain about discrimination, higher production costs (factory wages at entry level in Vietnam are 60% lower), stricter environmental regulations and, of course, supply disruptions. leaking. A European survey found that 23% of companies are considering exiting China.

This does not mean abandoning China as a production base or market. Foreign direct investment in China has actually increased in 2022. For example, his BASF in Germany is moving to China.And his two-part series this week financial times We detailed how Apple’s production network works with the Chinese ecosystem.

Countries like the US and India that have tried to limit imports from China have only seen China’s trade deficit grow. Still, I can’t deny the change in mood. CNBC’s supply chain “heat map” shows China losing out to Vietnam, Malaysia, Bangladesh, India and Taiwan.

The revival of industrial policy, much derided in the era of globalization, is therefore very real. It is driven by concerns about national security, supply chain vulnerabilities, and political tensions, which combine to trump simple competitiveness.

China itself announced in September (without disclosing details) a comprehensive national security system called “Securitization of Everything”.

For better or worse, the picture shows that India’s current policy drivers (production-related incentives, capital subsidies, etc.) are very much in line with, if not global, East Asian trends. indicates that there is But India, which ranks her seventh on the 2021 United Nations Foreign Investment List, is not the default alternative to China for most global companies.

To change that, India needs to deepen its integration with East Asia by concluding regional trade agreements, lowering tariff barriers and improving the quality of its labor force.

By special arrangement with Business Standard

Also Read: India could achieve 6.5% growth over the next decade, but not without significant policy changes.



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