China’s economy is slowing down: can India substitute the Dragon in international trade?

India will replace China as the pole of attraction for foreign investment and global exports, due to Xi Jinping's political and economic closure and the deterioration of relations between the West and China.
india replace china

India is a candidate to be China’s ideal replacement in terms of foreign trade attractiveness.

Little use was made of Xi Jinping’s grand proclamations when he was elected for the third time to lead the country at the last Communist Party Congress: the Dragon’s economy is inexorably slowing down.

The goal, set by Xi himself, of increasing Chinese GDP growth by 5.5% is proving to be a failure and unrealistic. Data emerging from the second quarter show that GDP growth was only 0.4%. This is the lowest growth since the first pandemic wave in 2020. And if in that case it was a temporary drop, due to the health emergency, this time we may be facing the beginning of something bigger.

Precisely for this reason, India is becoming increasingly important in global political and economic dynamics, and companies around the world are shifting their efforts from China to India.

But what is behind this great growth? And can India really now aspire to take China’s place in international trade?

China’s decline: closure to the West

The first element that has worried international analysts is the speed with which Xi Jinping and the Chinese Communist Party are closing many doors to foreign trade, proclaiming the goal of self-sufficiency.

In order to do so, they are necessarily closing to the West and the consequent deterioration of relations with Europe and the United States. The latest example was the case of Taiwan, a point of great economic interest due to its large concentration of companies engaged in the manufacture of electronic chips.

August 2022’s visit by US House Speaker Nancy Pelosi greatly angered the Chinese government, as it was seen as an attempt to gain economic and political return from the small state’s de facto independence from China.

And in response, Xi will increase his influence in the territory in every possible way, investing in the technology sector by favouring the birth and growth of domestic companies operating in the domestic market. Instead, there will be less and less room for foreign companies.

The failed ‘zero-covid’ policy

But there is another problematic element for China, namely the harshness with which the government applies mobility restrictions every time a new Covid outbreak arises.

A case in point is the metropolis of Shanghai which, until a few months ago, experienced a very strict lockdown of barred doors, food shortages and lack of freedom of movement.

Everything comes to a standstill and, in doing so, the economy does not grow, as per the effect of a failed response to the health emergency.

Indian openness to foreign investment

For this reason, many companies have started to turn and move towards a high-growth country like India, which in turn has noticed this wooing and is trying to attract manufacturing companies. The Indian government has publicly declared its desire to increase the manufacturing supply chain by offering incentives to manufacturers to set up factories.

The ‘Make in India’ campaign, for example, offered $10 billion in incentives for international companies to develop, manufacture and assemble Made in India products. Thus creating an investment-friendly environment, developing a modern and efficient infrastructure and opening up new sectors to foreign capital.

As a result, India climbed several positions in the Ease of Doing Business index. This is an indicator that reflects the ease of doing business in a given country. If only in 2016 the country was in 130th place, in 2020 it was 63rd, a jump of 67 positions in just four years.

Digital development and young population

Not only that. India is also a country that is experiencing a very interesting digital development. Internet users are expected to reach 840 million this year, a figure that has doubled compared to only four years ago (in 2017, it was 422 million).

This growth goes hand in hand with the presence of a large segment of young citizens in India, which continues to increase. While China’s population is falling sharply compared to India’s, India’s will rise from 674 to 940 million.

Will India soon replace China in international trade?

The Subcontinent is not an easy market (if any) and still has a long way to go. But the reforms implemented by Narendra Modi’s government to improve the ease of doing business, economic environment and competitiveness are beginning to be eloquently seen.

While a little further north, in China, the Chinese Communist Party continues to ignore internal problems related to economic growth and is increasingly closing in on itself. Political intervention and regulatory crackdowns will increasingly complicate the investment prospects of foreign companies in China.

In short, India is now a candidate to be the ideal replacement for China in terms of foreign trade attractiveness.

Read also: China puts English in the drawer: language teaching in public schools faces a setback

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