India is a candidate to be the ideal substitute for China in terms of the attractiveness of foreign trade.
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 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 facing 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 next few years the increasingly large middle class will enjoy greater spending power than in the past, fostering 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 top-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?
The first element that has worried international analysts, and which has put Italian and Western companies 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-reliance.
To do this, one inevitably passes through a closure to the West and to a 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 involved in the production 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 room for foreign companies.
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.
Finally, as if that weren't 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 disbursed liquidity never seen before 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 developers, since they have gone bankrupt in the meantime.
Lastly, Cifi Holdings, based in Shanghai, is struggling with bond defaults and downgraded by rating agency Fitch to CC, from 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 costs associated with a more inward-looking China are now clear. And it is clear that it seems rather unlikely that Chinese GDP will undergo exponential growth, at least in the medium term, especially since the war in Ukraine could last several years.
For this reason many companies have begun to turn and move towards a fast-growing country like India, which in turn has noticed this courtship and is trying to attract manufacturing companies. The Indian government has publicly declared its desire to increase the production chain, offering incentives to producers to set up factories.
Countryside "Make in India“, for example, offered $10 billion in incentives aimed at enabling international companies to develop, manufacture and assemble Indian-made product companies, creating an environment conducive to investment, developing a modern and efficient infrastructure and opening up new sectors to the 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 given country: if only in 2016 the country was in 130th place, in 2020 it reached 63rd, a leap of 67 positions in just 4 years. In 2020, Italy was in 58th place.
Not only that: India is also a country that is experiencing a really interesting digital development. For 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 the Indian one (the working-age population will fall from 930 million today to 817 million in 2050) in India it will rise from 674 million to 940 million.
Finally, historically Italy and India enjoy 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 community” he claims Vishnu Krishna, Director of Octagona India.
“Many Indians know the vast potential that Italy-India cooperation can offer both countries. Anything that is manufactured 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 on the Indian market”.
The Subcontinent it is not a simple market (if there are any) and still has a long way to go, but the reforms implemented by the Government of Narendra Modi in order to improve the ease of doing business, the economic context and competitiveness are beginning to eloquently compare.
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 the attractiveness of foreign trade. And Italian companies, given the strong relations between Italy and India, can derive great competitive advantage from it.
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