China remains the world's factory in many areas: in 2021, it accounted for 31% of the world's industrial production, which is colossal. But another figure indicates a newer trend: last year, foreign investment in China fell by more than 40%. True, it was a year marked by COVID-19, but China will not see the investment flows of the past two decades return any time soon.
Rules of commerce
There are many reasons for this. Some are economic, others are geopolitical. The first being the rise in production costs. A recent study showed the evolution of labor costs in Asia: the hourly wage in China has soared, three to four times higher than in Vietnam, Malaysia, or India.
Since multinationals' default is to always go for the lowest bidder, China, in its frantic race for development, has lost the cost war.
The West is less careful with our allies than with our adversaries.
The other explanation is geopolitical. The Sino-American cold war is having an effect on companies, as is the hardening of Chinese domestic policy, the erratic nature of its governance seen in its zero-COVID policy, and the growing awareness of geopolitical risk after Russia's invasion of Ukraine.
This is a golden opportunity to seize for India, Vietnam, and the many other countries that are now offering themselves as alternatives. Not that Vietnam is any less communist or more respectful of freedom than Beijing, but it keeps a good distance from China and enjoys good relations with Washington.
As in the days of the first Cold War, the one with the USSR, the West is less careful with our allies than with our adversaries. Vietnamese communism, or the worrying Hindu nationalism of Narendra Modi in India, do not stand in the way of doing business with the blessing of Washington. It is cynical but hardly surprising.
Still, we are witnessing a major turning point in globalization right now, and we can count on it having a much different face than we'd gotten used to in the years to come.
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