Octagona Srl/Internationalization News/Will India replace China in international trade?
Will India replace China in international trade?

Will India replace China in international trade?

India will replace China as a magnet for foreign investments and global exports, due to Xi Jinping's political and economic closure and the deterioration of relations between the West and China.


India is a candidate to be the ideal substitute for China in terms of foreign trade attractiveness.

Xi Jinping's great proclamations last year, on the occasion of his third nomination to lead the country at the last Communist Party Congress, were of little use: the Dragon's economy is inexorably slowing down.

Although Chinese GDP growth is estimated to grow by 5.20% (slightly lower than what Xi promised), the emerging data confirms the slowdown of the Chinese economy. Even estimates for 2024 predict a further decline. In 2020, GDP was characterized by a drastic decline. And if in that case it was a temporary drop, due to the health emergency, this time we may be looking at the beginning of something bigger.

Exactly for this reason, India is assuming ever greater importance in global political and economic dynamics, and companies from all over the world, including Italian ones, are shifting their efforts from China to India, aware of the great opportunities that this country can offer them.

Since last April, the Indian market has become the most populous in the world (surpassing the Dragon Country), and represents the sixth global economy thanks to the impressive GDP growth rate in the last 10 years (an average of 6.1% per year according to the International Monetary Fund).

Furthermore, in the coming years the increasingly large middle class will enjoy greater spending capacity than in the past, favoring interest in foreign brands: according to the World Economic Forum, over 140 million households will become middle class and another 20 million will enter the highest income category by 2030.

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


China's problems


Closure to the West

The first element that worried international analysts, and which put Italian and Western businesses on alert, 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.

To do this, we necessarily need to close ourselves to the West and to a consequent deterioration of relations with Europe and the United States. The latest example was the Taiwan case, a point of great economic interest due to its large concentration of companies involved in the creation of electronic chips.

The visit of Nancy Pelosi, Speaker of the United States House, in August 2022 greatly irritated the Chinese government, as it was seen as an attempt to obtain an economic and political return from the de facto independence of the small state vis-à-vis China . And in response, Xi will increase his influence on the territory in every possible way, investing in the technology sector favoring the birth and growth of national companies that will operate on the domestic market. Instead, there will be less and less space for foreign companies.


The failed “zero-covid” policy

But there is another problematic element for China, namely the harshness with which the government applied restrictions on mobility every time a new outbreak of Covid infections arose.

A case in point is the metropolis of Shanghai which, for much of 2022, experienced a very strict lockdown made of barred doors, food shortages and lack of freedom of movement. Subsequently, towards the end of 2022, inhabitants of other cities, such as Beijing, suffered new lockdowns imposed by the government.

Everything stopped and, in doing so, the economy did not grow, as a result of a failed response to the health emergency. But Xi will never admit the mistake, to avoid negative repercussions on his image and his political conduct in the country: this situation has contributed to the driving away many foreign investors.


The bursting of the real estate bubble

Finally, as if that were not enough, the third element that is contributing to the slowdown in economic growth, and to the general stampede of international companies on Chinese soil, is the bursting of the housing bubble. The sector alone is worth 30% of the national economy and for this very reason the Chinese government has provided unprecedented liquidity to save it.

Millions of Chinese citizens refuse to pay mortgage payments, having gone into debt to buy apartments that will never be completed by the builders, since in the meantime they have gone bankrupt.

Lastly, Cifi Holdings, based in Shanghai, is struggling with bond defaults and downgraded by the Fitch rating agency to CC, from the previous BB. And in full Evergrande style, the Chinese government is also trying to save this giant, increasing its debt and reducing economic growth.


The India opportunity


The costs associated with a more inward-looking China are now clear. And it is clear that it seems rather unlikely that China's GDP will undergo exponential growth, at least in the medium term, especially since the war in Ukraine could last several years.


Open to foreign investment

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

Countryside "Make in India“, for example, offered $10 billion in incentives aimed at international companies developing, producing and assembling Made in India products, creating an investment-friendly environment, developing a modern and efficient infrastructure and opening up new sectors to foreign capital.

reflexively, India has climbed several positions in the Ease of Doing Business index, an indicator that reflects the ease of doing business in a specific country: if only in 2016 the country was in 130th place, in 2020 it came in at 63rd, a jump of 67 positions in just 4 years. In 2020, Italy was in 58th place.


Digital development and young population

Not only that: India is also a country that is experiencing truly interesting digital development. This year it is expected that internet users will reach the 840 million people, doubled compared to just four years ago (in 2017 there were 422 million people).

This growth goes hand in hand with the presence of a large share of young citizens in India, which is constantly increasing. If that Chinese it is in sharp decline compared to that of India (the working age population will fall from 930 million today to 817 million in 2050) in India it will rise from 674 to 940 million.


Balanced and trusting relationship between India and Italy

Finally, Italy and India have historically enjoyed strong trade and political relations. Already during the Virtual Bilateral Summit of November 2020, during which the Indian Prime Minister Modi and the then Italian Prime Minister Giuseppe Conte signed a series of agreements in some strategic fields, such as pharmaceutical production, food processing and manufacturing, it was an excellent opportunity to further define bilateral relations. These relations were consolidated during the last G20.

In fact, as of October 2023, Italy is the third European country for exports, behind Germany and the United Kingdom, according to a recent study by the Ministry of Foreign Affairs and International Cooperation. And Indian entrepreneurs and managers confirm this trend e the strong interest in Italian products:

Italy has a very positive name among the Indian business communityhe claims Vishnu Krishna, Director of Octagona India.

“Many Indians know the vast potential that Italy-India cooperation can offer to both countries. Anything that is produced or designed in Italy usually has a positive impression on the Indian people. This is the best moment in recent years that Italian companies can exploit to enter or expand in the Indian market."




The Subcontinent it's not a simple market (if there are any) and still has a long way to go, but the reforms implemented by the Narendra Modi Government in order to improve the ease of doing business, economic context and competitiveness are starting to come together eloquently.

While a little further north, in China, the Chinese Communist Party continues to ignore internal problems relating to economic growth and increasingly closes in on itself. Political intervention and regulatory crackdown will increasingly complicate the investment prospects of foreign companies in China. All this while the securities sector will continue to experience, at least in the short period of great difficulties before recovering completely.

In short, India is now a candidate to be the ideal substitute for China in terms of foreign trade attractiveness. And Italian companies, given the strong relations between Italy and India, can derive great competitive advantage from it.



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