Since the reform and opening-up more than forty years ago, the Chinese Communist Party (CCP) has rapidly developed by relying on foreign capital and technological knowledge from the West, abundant cheap labor domestically, and a huge open market eager to buy Western products, despite uneven development within the country.
As a result, traditional manufacturing bases in the global manufacturing center have quickly disappeared, especially in the United States, as companies have relocated to China to take advantage of its cost advantages to remain competitive. The entire industry in the U.S., from textiles to electronics, automotive parts, computers, and even highly strategic military systems, disappeared in a matter of years, with over two million manufacturing jobs estimated to have been lost to China from 2001 to 2018.
The rise of China’s middle class has been rapid, with an estimated 800 million people lifting themselves out of poverty from 1979 to 2014. An upper-class of “New Money” individuals emerged, including wealthy businessmen, tech tycoons, and manufacturers, with CCP members also becoming part of the new rich. Today, the CCP is a party comprised of millionaires and billionaires. Just a few years ago (before the global outbreak of COVID-19), CCP leader Xi Jinping boasted that China’s unprecedented development and success were directly attributed to the CCP’s correct leadership.
However, those days are long gone.
China’s roller-coaster development has seen an abrupt decline, an outcome that was foreseeable along with the freefall currently witnessed. China watcher Gordon Chang and many others foresaw this in articles years ago. While no one predicted the global COVID-19 pandemic and the subsequent extended control imposed by the CCP, the pandemic and control measures have become crucial amid a string of CCP policy errors and economic distortions that have catalyzed the economic collapse China is now experiencing.
The CCP has discovered that relying on foreign capital and technology (with long-term exploitation of trading partners), an economy built on corruption, distortions in the real estate market, and rampant theft from its own people, the law of diminishing returns will eventually come into play. Most of China’s trading partners, whether Western countries or various countries involved in the self-directed Belt and Road Initiative game, no longer trust that the CCP will conduct trade fairly and seek to reduce risk associated with China. Major companies like Apple that helped China establish its high-tech industry are fleeing the country, with many other large corporations following suit.
The negative factors in China’s economy continue to compound. The real estate industry accounts for one-third of China’s GDP, and its financial crisis fallout continues to affect the entire economy. The rapid decline in population numbers and aging demographics have also had a severe impact on the economy leading to cultural alienation.
In fact, the outflow of investment funds from China to the U.S., Europe, Japan, and South Korea has exceeded investments into China for the first time in over forty years. There are no signs indicating that this trend will be reversed anytime soon. To exacerbate the situation, the worse things get, the more the CCP resorts to high-pressure tactics to maintain stability of its regime. This is a downward spiral process. This is the current state of China.
In short, for the world, China is replaceable. Countries like India and Vietnam stand to benefit directly, with India poised to reap the greatest benefits from China’s economic collapse. This is common knowledge.
India has the full capability to become the next major development story. With a growing population, a majority of whom are highly educated, a culture leaning towards the West after breaking free from British colonial rule, and distinct advantages in high technology, customer service, and automotive sectors. Furthermore, it has a friendly disposition towards the West and, importantly, is not under communist control.
From the perspective of foreign investment, global capital has flowed significantly into India’s computer and automotive industries. Currently, no one expects India’s $3.75 trillion economy to challenge China’s $15 trillion economy, but in terms of growth potential, India is a better bet. Companies are seizing the opportunity to replace business practices that clash in China with a more favorable business environment in India. A survey conducted by the UK-based international market research firm OnePoll on 500 American executives recently revealed that once the infrastructure is in place, 61% of companies will shift production to India.
Of course, India’s long-standing disadvantage lies in its lacking infrastructure development and delivery measures, where significant challenges need to be overcome. Nonetheless, some long-term trends suggest that India will continue to attract employment opportunities from China.
Unlike China, India’s income is on the rise, indicating healthier domestic demand for goods and services. India’s upper and middle classes are quickly approaching a total of around 400 million, comparable to China, with a more open market that will attract more high-quality products. In contrast, China has largely resisted opening its domestic market to the West.
Over the past decade, the Indian government has embarked on structural reforms to improve the economic and investment climate, making the country more business-friendly. The Indian government is also committed to digital transformation. Currently, India has one of the largest online populations globally, with low data charges and widespread adoption of the Unified Payment Interface (UPI), leading to rapid growth in its digital economy.
The CCP’s reaction to Western countries’ “de-risking” efforts has been futile, a foreseeable outcome. At the Munich Security Conference in February this year, Chinese Foreign Minister Wang Yi warned Europe and the U.S.: “Those who try to ‘de-Sinicize’ by using the name of ‘de-risking’ will make a historical mistake.”
The CCP fails to recognize that many of its policies are “historical mistakes” in many cases. China’s middle class is shrinking, and its population and economy are contracting. It must be understood that these failures are not the result of international de-risking efforts, but rather direct consequences of misguided CCP policies.
In conclusion, it is evident that for the world, China is not indispensable. India and other countries like Vietnam will benefit from China’s decline, with India positioned to gain substantially. This is a well-known fact that many acknowledge.
India has the potential to write the next major development narrative. With its growing population, majority of whom are well-educated, embracing Western culture post-colonial rule, and excelling in technology, customer service, and automotive sectors, India is a promising alternative to China’s economic decline. Moreover, the country’s friendly relations with the West and freedom from communist control further bolster its appeal to international investors.
India’s trajectory towards growth and development from China’s economic decline is particularly nuanced, with its increasing income levels, expanding middle and upper classes, and a more open market attracting global interest and investment. The structural reforms and digital transformation efforts signify India’s readiness to embrace its economic potential and compete on the global stage, offering a stable, business-friendly environment for foreign enterprises looking to diversify their operations away from China.
Overall, while China grapples with economic challenges and loss of international trust, India emerges as a key player in the global economy, poised for growth and prosperity as it sets the stage for a new chapter in economic development and innovation.
And it seems that it is not unimaginable that in the near future, India may indeed position itself as a strong contender in the global marketplace, offering opportunities for businesses seeking stability, growth, and a favorable investment climate beyond the realm of China’s economic uncertainties.