The Hollowing of China

Why China’s jobs will be flowing to India in a very big way.CommentaryFor four decades, China developed rapidly, if unevenly, by a seemingly unending stream of foreign investment and technological know-how from the West, unlimited cheap labor, and vast open markets hungry to buy whatever they produced.The West Made China WealthyAs a result, global manufacturing centers saw their manufacturing bases disappearing rapidly, especially in the United States, as companies relocated to China to stay competitive with China’s numerous cost advantages. Entire industries in the United States—from textiles to electronics, auto parts, computers, and even highly strategic military systems—vanished within a few years, if not overnight. It’s estimated that more than 2 million manufacturing jobs in the United States alone were lost to China between 2001 and 2018.China saw the rise of a middle class, with an estimated 800 million people lifted out of poverty from 1979 to 2014. A “new money” upper class also emerged, with merchants, tech moguls, and manufacturers growing exceptionally wealthy, as did China Communist Party (CCP) members. It is now a party of multimillionaires and billionaires. Only a few years ago (pre-COVID-19) did Chinese communist leader Xi Jinping boast the CCP alone was directly responsible for China’s unprecedented growth and success.Those days are over.A Predictable FallThe end of China’s big, long ride up the development rollercoaster was somewhat predictable, as was the big ride down that we’re now seeing. China observers such as Gordon Chang (and humbly, myself) saw this coming for years, if not, in Mr. Chang’s case, decades. Although no one (that I’m aware of) anticipated the COVID-19 spectacle and the CCP’s extended lockdown mandates that came from it, they loom large in a long line of missteps and economic distortions that catalyzed the ongoing collapse China is experiencing.The CCP is discovering that by relying on foreign capital and technology (the long-term abuse of the trading partners), an economy based on graft, real estate market distortions, and rampant theft from its own people, the laws of diminishing returns eventually kick in. Most of China’s trading partners, whether in the West or the self-serving Belt and Road Initiative, no longer trust the CCP to trade fairly and want to de-risk from China. Big companies such as Apple, which helped build China’s hi-tech sector, are leaving, as are many others.China Is ReplaceableThe negative factors continue to add up. The impact of the real estate crisis, which comprised up to one-third of China’s GDP, continues to ripple through the economy, as does the cultural alienation of an aging population with its numbers in rapid decline.In fact, for the first time in 40 years, more investment capital from the United States, Europe, Japan, and South Korea is leaving China than is being invested. There are no indications that that trend will be reversed any time soon. The kicker is that the worse things become, the more oppressive the CCP must be to hold onto power. Quite the downward spiral. That’s where China is right now.Related StoriesIn short, China is replaceable as far as the world is concerned. Countries such as India and Vietnam are the direct beneficiaries, with India standing to gain the most from China’s economic meltdown. That’s clear to everyone.India Will Be the Next Big Development StoryIndia is well-positioned to become the next big development story. It has a growing population, much of it highly educated, a more Western-facing culture, care of British colonialism, and established hi-tech, customer service, and automobile sectors, to name a few. Plus, it has the benefit of being West-friendly, that is, of not being China.From a foreign investment perspective, global capital is already flowing heavily into India’s computer and automobile industries. No one expects India’s $3.75 trillion economy to challenge China’s $15 trillion economy today, but from a growth perspective, India is a far better opportunity. Companies would jump at the chance to replace the adversarial business practices they battle in China with India’s more amenable business climate. A recent survey of 500 American executives by market research firm OnePoll showed that 61 percent would move their production to India once the infrastructure was in place.Long-Term Trends Favor IndiaAt the same time, India’s poor roads and distribution obstacles create significant infrastructure challenges that must be overcome. However, several long-term trends bode well for India, which will continue to attract jobs from China.Unlike China, India is seeing rising incomes, which means healthier domestic demand for goods and services. India’s upper and middle classes will soon number around 400 million, rivaling China with a more open market that will attract premium products. In contrast, China has largely refused to open its domestic market to the West.Over the past decade, the Indian gov

The Hollowing of China

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Why China’s jobs will be flowing to India in a very big way.

Commentary

For four decades, China developed rapidly, if unevenly, by a seemingly unending stream of foreign investment and technological know-how from the West, unlimited cheap labor, and vast open markets hungry to buy whatever they produced.
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The West Made China Wealthy

As a result, global manufacturing centers saw their manufacturing bases disappearing rapidly, especially in the United States, as companies relocated to China to stay competitive with China’s numerous cost advantages. Entire industries in the United States—from textiles to electronics, auto parts, computers, and even highly strategic military systems—vanished within a few years, if not overnight. It’s estimated that more than 2 million manufacturing jobs in the United States alone were lost to China between 2001 and 2018.

China saw the rise of a middle class, with an estimated 800 million people lifted out of poverty from 1979 to 2014. A “new money” upper class also emerged, with merchants, tech moguls, and manufacturers growing exceptionally wealthy, as did China Communist Party (CCP) members. It is now a party of multimillionaires and billionaires. Only a few years ago (pre-COVID-19) did Chinese communist leader Xi Jinping boast the CCP alone was directly responsible for China’s unprecedented growth and success.

Those days are over.
.

A Predictable Fall

The end of China’s big, long ride up the development rollercoaster was somewhat predictable, as was the big ride down that we’re now seeing. China observers such as Gordon Chang (and humbly, myself) saw this coming for years, if not, in Mr. Chang’s case, decades. Although no one (that I’m aware of) anticipated the COVID-19 spectacle and the CCP’s extended lockdown mandates that came from it, they loom large in a long line of missteps and economic distortions that catalyzed the ongoing collapse China is experiencing.
The CCP is discovering that by relying on foreign capital and technology (the long-term abuse of the trading partners), an economy based on graft, real estate market distortions, and rampant theft from its own people, the laws of diminishing returns eventually kick in. Most of China’s trading partners, whether in the West or the self-serving Belt and Road Initiative, no longer trust the CCP to trade fairly and want to de-risk from China. Big companies such as Apple, which helped build China’s hi-tech sector, are leaving, as are many others.
.

China Is Replaceable

The negative factors continue to add up. The impact of the real estate crisis, which comprised up to one-third of China’s GDP, continues to ripple through the economy, as does the cultural alienation of an aging population with its numbers in rapid decline.
In fact, for the first time in 40 years, more investment capital from the United States, Europe, Japan, and South Korea is leaving China than is being invested. There are no indications that that trend will be reversed any time soon. The kicker is that the worse things become, the more oppressive the CCP must be to hold onto power. Quite the downward spiral. That’s where China is right now.

In short, China is replaceable as far as the world is concerned. Countries such as India and Vietnam are the direct beneficiaries, with India standing to gain the most from China’s economic meltdown. That’s clear to everyone.
.

India Will Be the Next Big Development Story

India is well-positioned to become the next big development story. It has a growing population, much of it highly educated, a more Western-facing culture, care of British colonialism, and established hi-tech, customer service, and automobile sectors, to name a few. Plus, it has the benefit of being West-friendly, that is, of not being China.

From a foreign investment perspective, global capital is already flowing heavily into India’s computer and automobile industries. No one expects India’s $3.75 trillion economy to challenge China’s $15 trillion economy today, but from a growth perspective, India is a far better opportunity. Companies would jump at the chance to replace the adversarial business practices they battle in China with India’s more amenable business climate. A recent survey of 500 American executives by market research firm OnePoll showed that 61 percent would move their production to India once the infrastructure was in place.

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Long-Term Trends Favor India

At the same time, India’s poor roads and distribution obstacles create significant infrastructure challenges that must be overcome. However, several long-term trends bode well for India, which will continue to attract jobs from China.
Unlike China, India is seeing rising incomes, which means healthier domestic demand for goods and services. India’s upper and middle classes will soon number around 400 million, rivaling China with a more open market that will attract premium products. In contrast, China has largely refused to open 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 and make the country more business-friendly. It has also committed the country to digital transformation. It now has one of the largest online populations in the world, with low data tariffs and widespread adoption of Unified Payment Interface (UPI), which has resulted in a steep rise in its online economy.
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Beijing Warns About ‘De-Sinicization’

The CCP’s response to the West’s de-risking efforts has been ham-handed and predictable. At the Munich Security Conference in February, Chinese Foreign Minister Wang Yi warned Europe and the United States that “Whoever tries de-sinicization in the name of de-risking would be making a historical mistake.”

The CCP fails to admit that its policies have been “historical mistakes” in many instances. Its middle class is shrinking, as is its population and economy. Those failures aren’t a result of de-risking but rather the direct result of the CCP’s policies.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.

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