China Plus One : Niti Aayog

China Plus One : Niti Aayog

Even as a new NITI Aayog report, the ‘Trade Watch’, released recently, says that India has seen “limited success so far” in capturing the ‘China Plus One’ strategy.

Key Points :
India’s Limited Success in the ‘China Plus One’ Strategy:

The NITI Aayog report notes India has not fully capitalized on the opportunity to attract multinational companies diversifying away from China.
Potential Economic Boom from Trade Diversion:

• NITI Aayog CEO highlights potential benefits for India from global trade shifts due to US trade policies and disruptions, particularly under Trump’s strategies.
  Impact of the Ongoing US-China Trade War:
• Trade tensions between the US and China create opportunities for neutral economies like India to benefit from redirected supply chains.

India-US Relations: Opportunities Beyond Trade

• With the US as India’s largest trading partner, there’s significant potential to increase trade in underrepresented sectors.
• Concerns Over Protectionist Policies:
• Experts warn that raising tariffs (e.g., on steel imports) could harm India’s competitiveness and have downstream effects on domestic industries.
  Decline in Indian Steel Exports:
• Oversupply from China and weak domestic demand have caused a steep fall in India’s iron and steel exports.
  Trade Opportunities amidst US Tariffs on China:

US tariffs on Chinese imports (up to 60%) could provide India with new market opportunities, despite short-term shocks.
ASEAN Economies Outperform India in ‘China Plus One’ Strategy

• Countries like Vietnam and Malaysia have gained more from this strategy due to favorable conditions such as cheaper labor and proactive trade policies.
  Challenges Posed by US Export Controls and EU CBAM:

The US restricts Chinese goods to limit its technological progress, and the EU’s Carbon Border Adjustment Mechanism (CBAM) raises costs for Indian exports like iron and steel.
Need for Strategic Adaptation:

India must adapt to trade fragmentation by exploring new markets, improving compliance, and focusing on sectors where it holds competitive advantages.

What is China Plus One?

China Plus One is a business strategy adopted by multinational companies to diversify their supply chains by expanding manufacturing or sourcing operations to countries other than China, while still maintaining a presence in China. This approach emerged as companies sought to reduce over-reliance on China, particularly due to risks such as:

1. Geopolitical Tensions: Trade conflicts like the US-China trade war and China’s strained relations with other countries.
2. Rising Costs in China: Labor and manufacturing costs have increased in China, making it less cost-effective for certain industries.
3. COVID-19 Pandemic: The disruption to global supply chains during the pandemic exposed vulnerabilities of over-dependence on a single country.
4. Regulatory Challenges: China’s strict regulations and policy unpredictability have also contributed to companies seeking alternative locations.

Features of the Strategy:

• Diversification: Companies establish additional manufacturing facilities in other countries (e.g., Vietnam, India, Thailand) while continuing operations in China.
• Risk Mitigation: Reduces the impact of disruptions in China’s economy or global trade policies.
• Flexibility: Maintains access to China’s large domestic market while leveraging cost or policy advantages in other nations.

Beneficiary Countries:

Countries such as Vietnam, India, Malaysia, Thailand, and Indonesia have gained from this strategy due to factors like:

• Lower labor costs.
• Simplified tax structures.
• Proactive trade agreements.
• Strategic geographical locations.