The Next Economic Superpower?
After the corona virus chapter ends, will the new world situation be propitious or dreadful for India? The answer to this depends on how China will fare in World 2.0. The question is whether China will struggle under the blow of ‘humiliation’ and a global economic slowdown; or will it rise like a phoenix and become far more powerful than it is today?
As the Chinese return to work, they do so in an environment filled with uncertainty. Despite growing into one of the world’s biggest economic superpowers, the crisis is now precipitating a shift of the balance of power to places one might not expect. There are already signs that nations around the world are moving away from producing in China and are looking for alternatives and we might witness the creation of a new economic superpower, right in front of our eyes.
Known for giving acute headaches to the likes of the US and Japan for many years, How did China become a superpower in the first place?
In the 1970s, when China began shifting its economic policies away from communism and towards capitalism, they started building economic zones where massive ports and factories were built. In the 1980s, China’s economy exploded as many Fortune 500 companies began manufacturing in China because China could make quality products but for substantially lower prices. This was because of meagre wages, business conducive tax laws and import-export efficiencies which made the products so competitive in the international market that many companies which produced their goods elsewhere eventually went out of business. It was at this point when things became “Made in China” and that phrase became so popular throughout the world. By 2010, one in every three products on earth was manufactured in China. Over 40 years, it had made its mark on the global platform and became the second-largest economy behind the United States.
But how did the Chinese do what nobody else could? How did they manufacture superior quality products at such cheap prices? Was it low-cost labour available in plenty? Why did the West shift its entire manufacturing base to China?”
That is a massive increase seen in the average wage of a manufacturing worker and what this means today is that the costs of making goods in China have become a lot more expensive.
Despite being known as a country with cheap labour available in abundance, these cold hard numbers tell us an entirely different story. Over the years, the cost of manufacturing goods in China has shot through the roof. China sourced manufacturing has been slowing over the past decade, but the country remains the largest manufacturer in the world. Because of the COVID-19 pandemic and the famous trade war with the US in 2019, global players with stakes in China's manufacturing architecture, amidst China's nationwide lockdown found themselves stranded. They realised that it was not prudent to put too many eggs in one basket. A Tokyo report suggests that roughly 37% of these global companies are willing to pack up, as they search for new bases to outsource their manufacturing activities.
That brings us to the next question, as China’s manufacturing sector continues to shrink who will be the biggest beneficiary of this shift out of China wave?
Will India Surpass the USA and China?
The United States and China dominate conversations when it comes to the strongest economies in the world but India is changing up the focus based on its incredible economic growth over the past decade and its limitless potential for the future but is it realistic to think the 5th largest economy will surpass the chart-toppers?
India roughly has the same population as China but while it is touted as India’s strength it is slowly turning out to be a colossal problem for China. The underlying reason for this disparity lies in the demography of the population in both countries. China and America both have relatively old populations, the median age in the USA and China is 38 whereas in India is 28 years old. Nearly 65% of Indian population is below the age of 35. So you can infer that average Indian is about 10 years younger than an American or a Chinese.
India’s economy has grown from a GDP per capita of $470 in 2002 to roughly $2100 in 2020 and this economic growth has resulted in India lifting over 300 million citizens out of poverty over the last 18 years. This incredible growth can be attributed significantly to our growing manufacturing prowess, which in turn is due to our low cost of labour. Currently, the average Indian manufacturing labourer makes about $5/day, meanwhile, the average Chinese manufacturing labourer makes about $28/day. This has made India a more attractive place for some companies. Yes! We are en route to becoming the new China for the world!
It is these two advantages that position India to become a global superpower in the near future, possibly eclipsing the success of both the US and China. This large and dynamic young workforce available at a relatively cheap cost has now attracted the interest of tech giants such as Apple to invest and manufacture in the country!
India should grab the chance
“Tide in the affairs of men” is not only a quote taken out of Shakespeare’s book but is a quote which suits the current situation for India. China will give up its mantle for being the world’s factory soon, so it’s for a country like India to rediscover manufacturing. Is India going to be the next China? No one knows. Indians should focus on granular progress by taking steps slowly but firmly. It might take ages before India achieves its goal of self-reliance, but till then, India should focus on building competitive systems and infrastructure to at least start making progress on a path of global reckoning as a formidable manufacturing hub.
A wave of Boycott
India needs to be smart in dealing with China. The question arises how would a boycott work? Importantly, India can’t be the only country that wants to reduce its dependence on Chinese goods.
Every business has started to make money, and it makes little sense for them to unilaterally withdraw their operations from China. By doing so, they would give up valuable market share to their rivals. If all companies across the globe jointly boycotted China, then this would be equivalent to acting as if a Chinese market didn’t exist. The profits would take a hit in the brief term, but they could meet the long-run objectives.
When border tensions between India and China have escalated on the Ladakh frontier, there has been an upsurge in nationalist sentiments among media houses in both countries.
The boycott Chinese goods motion seems to have bitten off more than it can chew. Despite distrust between India and China, bilateral trade between the two has increased from $38 billion in 2007-2008 to $92 billion in 2019-2020. However, India suffers a huge trade deficit of $56.7. Though the trade deficit has declined by $3 billion Year on Year (YOY) there is still time until we become an exporting country to China.
India might topple the US and China to become the number one economy, but when and how, only time will tell.
Stay tuned for the next release on Hindi-Chini No Buy-Buy to find out more.