by Bryan Perry
November 29, 2022
The bold move by China’s President Xi Jinping, the most powerful leader in China since Mao, recently increased his grip on the government and the country when he was named to an unprecedented third term as head of the post-Mao Communist Party. He immediately eliminated layers of the upper echelon of government and promoted allies who support his vision for tighter control over society and the economy.
This is a major shift in China’s policy, as Xi looks to quell much of the gains made in Deng Xiao-Ping’s market-oriented reformist ideology that fueled the enormous presence of Western corporations in China. Xi then called for faster military development, self-reliance in technology, and the defense of China’s interests abroad, including Taiwan, by whatever means, raising the specter of further economic tension.
The Chinese Communist Party (CCP) has a new directive to tighten control and roll back the market reforms that will surely weigh on both domestic and foreign companies doing business there. This new paradigm creates a major opportunity for other countries to attract global companies looking to relocate their manufacturing processes, and that opportunity, in my view as well as many others’, exists in India.
Consider these reports from Reuters and other respected sources about the shift from China to India:
India provides the tech savvy and labor force for companies like Apple (AAPL) to move production out of China and not miss a beat. In fact, Apple is already undergoing this shift, having shipped over $1 billion in iPhones this year from India, a clear indicator of the tech behemoth’s growing wager on India’s new push to draw in key companies with low-cost local manufacturing that can scale (source: Reuters, https://www.reuters.com/technology/exports-india-made-iphones-top-1-billion-5-months-bloomberg-news-2022-10-04).
“The outbound shipments of India-made iPhones, mainly to Europe and the Middle East, are set to reach $2.5 billion in the 12 months through March 2023, almost double when compared to the year through March 2022…. Mexico and Vietnam are also notable draws for contract manufacturers that supply American brands, looking to diversify away from China amid rising tensions between Washington and Beijing and ever-present Covid lockdowns that stifle production schedules.
“India’s Prime Minister Narendra Modi’s government is planning to attract more big-time investments under a $10 billion incentive plan for chip and display production, aiming to make India a key player in the global supply chain. Modi’s government had already agreed to cover between 30% and 50% of the cost of setting up new display and chip plants. Back in late September, the government said that it will also cover 50% of the capital expenditure required to set up semiconductor packaging facilities (source: Reuters, https://www.reuters.com/markets/asia/india-offer-more-fiscal-support-under-its-chip-production-incentive-scheme-2022-09-21/).”
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Modi’s goal is to grow the share of manufacturing in the economy from the current around 15% to 25% as part of his ‘Make in India’ program. His government has already lowered taxes on companies to among the lowest in Asia, seeking to attract new investments in an economy headed for its first contraction in more than four decades this year. The latest output-linked incentive plan is a “big win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to clients. He sees gains for industrials, cement, pharmaceuticals, metals, and logistics, with long-term indirect benefits across many sectors.
Junior IT minister Rajeev Chandrasekhar said the government is in conversations with many of the global players to invest in India’s chip sector, without naming any. “These conversations are happening in the context of multiple incentive packages and programs that have been announced by various countries,” Chandrasekhar said. “Our proposition is … we have a proven track record of growing the electronics industry. And we also come along with the basic infrastructure requirement to set up manufacturing.” (source: https://www.reuters.com/markets/asia/india-offer-more-fiscal-support-under-its-chip-production-incentive-scheme-2022-09-21/)
Back in August 2020, Samsung laid out plans to make $40 billion worth of smartphones in India and may shift a major part of its production from Vietnam and other countries, the Economic Times reported. “Samsung is likely to diversify its production lines for making smartphones to India under the PLI (Production Linked Incentive) scheme and this will have an impact in its existing capabilities across various countries like Vietnam.” (source: https://economictimes.indiatimes.com/tech/hardware/samsung-likely-to-move-part-of-smartphone-production-to-india-plans-to-make-devices-worth-40-bn/articleshow/77582820.cms)
This global shift has not gone unnoticed. While most global markets are trading well off their historic highs, India’s Sensex traded to a new all-time high on November 24, and its peer Nifty 50 touched a new 52-week high last Friday – but this raging Indian bull market gets little or no financial media coverage.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The shift away from China by leading technology companies is of China’s own making – through their ultra-tight controls, forced technology transfer, and outright theft of intellectual property, as I have written here in the past. The old saying, “Money goes where it is best served,” can be amplified to say this: “Manufacturing goes where it is best served.” China has betrayed trust and lost favor with the U.S. and other nations, whereas India is rapidly becoming a tech assembly powerhouse and a better global partner.
Navellier & Associates owns Apple Computer (AAPL), in managed accounts. Bryan Perry does not personally own Apple Computer (AAPL).
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
2022 Will Be Remembered for the Collapse of ESG…and FTX
Income Mail by Bryan Perry
The Global Tech Shift from China to India Is On
Growth Mail by Gary Alexander
Ten Trends to Be Thankful For (Part 2)
Global Mail by Ivan Martchev
Here Comes Another S&P 500 “Line in the Sand”
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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