Did China Just Drop The Ball On Global Dominance?

0:00 Two decades ago, China's economy was home

0:02 to the most intense economic growth ever seen.

0:05 No economy in history that large had grown that quickly.

0:08 But today, the IMF expects growth to hover around 4.8%

0:11 for 2025 and fall further to about 4.2% in 2026.

0:16 The IMF also warns that without major reforms,

0:18 China's potential growth could sink to as low as 3% a year by the 2030s,

0:23 less than a third of what it was experiencing a decade ago,

0:26 and also probably not enough for it to close the gap on the USA.

0:29 What's more is that given its geopolitical complications

0:32 and the threats it's now presenting to global advanced industries,

0:35 a lot of its biggest export customers are trying their very best

0:38 to reduce their dependence on Chinese

0:39 manufacturing with various levels of subtlety.

0:42 However, at the same time,

0:44 China's trade surplus has reached its highest level ever,

0:46 becoming the first economy in history to have net exports

0:49 of more than a trillion dollars in a single year.

0:52 So, for now, it's not that countries want to buy from China.

0:55 It's just that as much as they try to fight it,

0:57 they often don't have another option, which is an opportunity.

1:00 So with China's growth slowing and western restrictions tightening,

1:03 a major gap is opening in global supply chains for the first time in decades.

1:08 Countries like Vietnam, Mexico, and Indonesia are racing into fill it.

1:11 But one has emerged as the front runner.

1:13 For the first time in a generation,

1:14 India stands at a center of the world's biggest economic shift.

1:17 The Indian government set a goal of reaching a $5 trillion economy by 2025,

1:21 [music] which now that we're actually at the end

1:24 of the year feels a little optimistic.

1:26 But even without hitting that mark, the progress has been remarkable.

1:30 India is already the fifth largest economy in [music] the world.

1:33 And as growth rates slow for other countries in the top five,

1:36 the IMF estimates growth of around 6.4% for India in 2025 and 2026.

1:42 Major companies are already moving in.

1:44 Apple is assembling iPhones there.

1:45 LG is building a manufacturing complex that will

1:47 produce more than 5 million appliances a year.

1:49 Toyota, Honda and Suzuki are investing billions of dollars

1:52 to build new cars and [music] factories in India.

1:54 And almost every multinational is now asking the same question.

1:57 Can India replace China as the world's next manufacturing powerhouse?

2:01 But to know whether India can really take the lead,

2:04 we first need to ask what has caused China's slowdown?

2:07 Can India avoid the same problems?

2:09 And finally, is relying on the next cheapest

2:11 country in line really a viable long-term strategy?

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2:58 For 20 years, the maths was simple.

3:00 Cheap labor plus open trade in a world hungry

3:02 for lowcost goods equaled an opportunity to become the world's factory.

3:06 China perfected that equation and so entire industries moved east.

3:10 Cities like Shenzhen and Guanjo transformed from fishing towns

3:13 to global mega factories producing everything from phones to furniture.

3:17 And for a long time, China looked unstoppable.

3:19 Between 2000 and 2010, its GDP grew by an average of 10% a year,

3:24 catapulting China into the world's second largest economy.

3:27 And over the broader period since the late 1970s,

3:29 that rise has helped lift more than 800 million people out of extreme poverty.

3:34 But lately, the numbers tell a different story.

3:36 Growth has slowed to around 5%, which is, to be clear,

3:39 still very good, especially for an economy this large.

3:41 But it's still a serious decline from where it was not too long ago,

3:45 because labor, trade, and global demand has [music] changed.

3:48 In 2013, the average factory worker in China earned around 32,000 yuan,

3:52 roughly $5,000 a year.

3:54 Today, that figure has doubled to around 65,0001 or around $9,000.

3:58 That's still cheaper than the West,

4:00 but expensive enough to decrease the advantage

4:02 that once made outsourcing to China a no-brainer.

4:05 So, in the last few years,

4:06 wages rose and living standards improved, which is great for domestic demand.

4:10 But these changing conditions also priced China out of low-end,

4:13 low margin, lowcost manufacturing.

4:15 Factories that once relied on an endless supply of cheap

4:17 workers now have to pay more, automate, or move.

4:20 Add to this the fact that its population is getting older and older.

4:23 And yes, China is struggling to find workers.

4:25 In fact, its working age population peaked

4:27 around 2015 and has been shrinking ever since.

4:30 Birth rates have hit some of their lowest levels on record,

4:32 and China now has around 40 million fewer people

4:35 aed 15 to 59 than it did in 2010.

4:38 That means fewer workers entering factories

4:40 and more retirees drawing familial or governmental assistance.

4:43 While a labor shortage, and what was until recently the world's

4:46 most populous nation used to sound impossible, now it's becoming a reality.

4:50 Also, as wages rose,

4:52 China leaned on another engine to keep growth humming, and that was property.

4:55 Local governments sold land, developers borrowed to build,

4:58 and families poured their savings into apartments

5:00 that always seemed to rise in value.

5:02 And that cycle drove demand for steel, cement, furniture, and home appliances.

5:06 Basically, everything made in China.

5:08 But now that cycle has broken when

5:10 developers like Everrand defaulted on their loans, home sales collapsed,

5:13 and local governments lost one of their biggest sources of revenue.

5:16 Entire projects were left unfinished and the real

5:19 estate sector which once made up as much

5:21 as a quarter of China's GDP [music] started

5:23 dragging growth down instead of pulling it up.

5:25 And it doesn't help that the world itself has changed.

5:28 Globalization, the system that elevated China's economy

5:31 in the first place, is now in retreat.

5:33 The US has placed sweeping restrictions on advanced

5:35 semiconductors and the equipment used to make them.

5:37 Europe has introduced new tariffs on Chinese electric vehicles,

5:40 citing unfair subsidies.

5:41 Even individual companies that depend on China

5:43 for imports are looking for backup options.

5:46 A strategy they now call China plus one,

5:48 which means keeping operations in China,

5:50 but adding a second base somewhere safer just in case.

5:54 For example, Apple still makes most of its products in China,

5:57 but it's now building more of them in India

5:59 and Vietnam to reduce its dependence on a single country.

6:02 Advanced semiconductors, industrial processes,

6:04 and design software are now seen as strategic assets,

6:07 and China's access to many of them is narrowing.

6:09 When Washington cut Huawei off from American chips and software,

6:12 the company lost its smartphone dominance almost overnight.

6:15 That's a warning sign for every other

6:17 Chinese manufacturer that depends on foreign components.

6:19 Automation is also working against [music] China.

6:22 Robots have become cheaper, faster, and easier to deploy.

6:24 Tasks that once needed hundreds of workers can now

6:26 be done by a few machines running around the clock.

6:29 With the recent hype around AI,

6:30 the push to invest into advanced automation has also never been stronger.

6:34 Even if it works out more expensive than Chinese manufacturing,

6:37 companies are being rewarded in financial

6:38 markets for simply trying to implement AI.

6:41 So, proximity to customers and political

6:43 stability now matter more than sheer headcount.

6:45 And if they can make the same product anywhere,

6:47 companies will pick the place with fewer risks, not just lower wages.

6:51 Put this all together,

6:52 and the conditions that once guaranteed China's growth have flipped.

6:55 Don't get me wrong, China still has a massive innovative economy,

6:58 but the model that built it has run its course.

7:01 The cheap labor export-driven miracle of the 1990s and 2000s

7:04 simply doesn't have enough steam to keep up double-digit growth.

7:07 [music] And that's what makes India's moment so

7:10 interesting because even if India followed China's playbook exactly,

7:14 it would be playing by rules for a game that no longer exists.

7:18 So the question now isn't just whether India can copy China's rise.

7:21 It's whether it can build a new

7:23 model for growth in a completely different world.

7:25 For years, India's strength was services.

7:28 Accounting, software, design, compliance,

7:30 the kinds of services that kept global companies running.

7:33 And that allowed India to build

7:34 a completely different kind of workforce than China's.

7:37 English-speaking talent, problem solving at scale,

7:39 and a private sector used to building around constraints.

7:42 Now, India is trying something it largely skipped the first time around,

7:45 a serious manufacturing push built on top of that service backbone.

7:49 At the center of this push is

7:50 a set of production linked incentive programs or PLIS.

7:54 They're basically government rewards for companies that don't just set

7:56 up a factory but actually make and ship things from India.

8:00 The more you produce in sectors like electronics,

8:02 auto parts or semiconductors, the more financial incentives you unlock.

8:06 And so far it seems to be working.

8:08 In Tamil Nadu, Foxcon now makes iPhones that used to come entirely from China.

8:12 Samsung runs one of the world's largest phone factories near Delhi.

8:15 And Micron is investing billions to build a chip packaging and testing facility,

8:19 a crucial early step in the semiconductor supply chain.

8:22 These projects are building a network of suppliers, engineers,

8:24 and technicians who know how to keep production running.

8:27 But India's real advantage actually might be digital.

8:30 Over the past decade, the country quietly built out one

8:33 of the world's most advanced digital infrastructures.

8:35 Through systems like Adar, a universal ID, UPI, and instant payment network,

8:39 [music] and the India stack, a data sharing platform.

8:42 India made it easy for citizens and small

8:44 businesses to operate in the formal economy.

8:46 That means shop owners can get business loans with verification records.

8:49 Suppliers get paid instantly and government payments or refunds

8:52 lend directly in bank accounts without middleman or delays.

8:55 In short, India has taken a lot of impressive strides to cutting down

8:58 on the bureaucracy that was once so bad we made an entire video about it.

9:02 [music] Now, it is still not perfect and there is a long way to go,

9:06 but chipping away at one of the biggest

9:08 hurdles to business will likely help it a lot.

9:10 It also doesn't need to be the easiest place in the world to do business.

9:13 It just needs to be easier than China

9:15 and all of the other developing countries around it.

9:18 This push to accommodate business is also

9:20 helped by a surprisingly diverse set of strategies.

9:23 China had fierce competition between its provinces.

9:25 But its strategy was still driven from the top.

9:28 India has national schemes too like the PLIs and make in India.

9:31 But the real acceleration is happening at the state level.

9:34 State governments are racing to attract investments with faster permits,

9:37 better power supply and training programs.

9:39 While some states focus on electronics,

9:41 others set their sights on autos or textiles.

9:44 And when states focus on different industries,

9:46 strong local ecosystems naturally emerge,

9:48 often outpacing centrally planned approaches.

9:51 The result is a messy and uneven but very real wave of industrial growth.

9:55 Of course, the challenges are still huge.

9:58 Manufacturing makes up only about 13% of India's GDP,

10:01 far below China's peak of 27%.

10:04 Power cuts, clogged roads,

10:05 and slow ports still add costs that no incentive can erase.

10:08 Land and permits remain difficult and businesses

10:11 still complain about unpredictable local regulations.

10:14 And then of course there's also inequality.

10:16 India's growth has mostly benefited skilled

10:18 urban workers but not the rural majority.

10:21 A chip plant might employ a few thousand engineers but it

10:24 doesn't mass create jobs for the millions entering the workforce each year.

10:28 That's why economists say India needs to match

10:30 those big high-tech wins with labor intensive industries like appliances,

10:34 small electronics, and affordable vehicles.

10:36 Because if it doesn't, India could end up with a two-speed economy.

10:39 High-tech campuses for the few and slow growth for everyone else.

10:43 Now, looking broadly at every economy in the world right now,

10:46 that wouldn't be a unique problem.

10:48 But it would be one that's a lot more pronounced in a country like India where

10:51 tangible human development in a lot of areas that still has a long way to go.

10:55 When most people aren't earning more, domestic demand stays weak.

10:58 [music] Labor gets stuck in low productivity jobs.

11:00 Inequality rises, which drags down overall growth.

11:03 And even discounting the social costs,

11:05 it just keeps the country from maximizing productivity.

11:07 And if India can't fully mobilize its workforce,

11:10 it becomes much harder to match China's economic scale,

11:12 let alone compete with it.

11:14 Still, India has one final advantage that many others don't.

11:18 Capability.

11:19 In modern factories, cheap labor isn't enough.

11:22 They need technicians who can run automated lines at 3:00 a.m.

11:25 quality teams with people who can trace every fault in a supply

11:27 chain and managers who can pass a global audit without a script.

11:31 That's where India's service background helps.

11:33 It has already trained millions of people to manage

11:35 data [music] processes and clients across time zones.

11:38 So if India wants to take China's place

11:40 in the global economy, its moment is now.

11:42 That open door created by tariffs, geopolitics,

11:44 and supply chain reshuffleling won't stay open forever.

11:47 Companies are already diversifying by signing

11:49 contracts and breaking ground on new factories.

11:51 So if India wants a permanent seat in the global manufacturing arena,

11:55 it has to move fast.

11:56 Once something like a phone factory opens, its suppliers soon follow.

12:00 Glass, batteries, camera modules, and logistics hubs.

12:03 Nearby universities adjust their courses to train workers for those plants.

12:06 Payments flow instantly through UPI and customers

12:09 paperwork that once took days now happens online.

12:11 The Indian system isn't perfect,

12:13 and it's not evenly distributed, but it is a start.

12:17 And if the country can keep combining

12:19 its digital infrastructure with real world manufacturing,

12:21 it might not just replace China's role in the global economy,

12:23 it could redefine the global economy entirely.

12:26 India is not following China's playbook.

12:28 And that's the point.

12:29 It isn't trying to be the cheapest factory in the world.

12:31 It's trying to be the easiest place to build, scale, and ship from.

12:34 If the new approach works,

12:36 India just needs to make it simple for companies to operate,

12:39 certify, export, and grow.

12:41 But that strategy only works in a world where

12:43 companies are willing to hedge their bets by diversifying.

12:46 And so far they are.

12:47 Companies are eager to build production in multiple

12:49 markets to mitigate risk and keep [music]

12:50 supply chains moving even if one country falters

12:54 especially in a decade defined by geopolitical shocks.

12:57 If you look at the map today, you can see it happening in real time.

13:00 Vietnam, Indonesia, Mexico, and India are all competing to be

13:03 the next link in the global manufacturing supply chain.

13:06 Vietnam has been one of the biggest winners so far.

13:08 When trade tensions escalated between Washington and Beijing,

13:11 electronics giants like Samsung, Apple,

13:13 and Intel poured billions into factories near Hanoi and Ho Chi Min City,

13:17 Vietnam's exports have more than doubled since 2016,

13:20 and shipments to the US now account for around 30% of all Vietnamese exports,

13:24 making America its largest single destination.

13:27 Mexico, meanwhile, benefits from geography.

13:29 Mexican factories can move products across

13:31 the US border in hours instead of weeks.

13:33 And in a world where delays can entire industries,

13:36 that proximity has become a major advantage.

13:38 That's why Mexico recently overtook China as America's largest

13:41 trading partner for the first time in two decades.

13:44 But Mexico has its own hurdles.

13:45 Cartel violence, inconsistent energy policy,

13:48 and aging infrastructure limit how far new shoring can go.

13:51 Then there's Indonesia, which is rich in natural resources and is using

13:54 them to attract investment in EVs and clean tech.

13:57 But like Vietnam, it faces challenges in logistics and training.

14:00 Congested ports, red tape and shortage of specialized

14:03 skills make scaling up harder than it looks.

14:05 That's where India stands out.

14:06 Unlike its competitors, India's not just offering low wages or proximity,

14:10 but also scale and relative stability.

14:13 It has a workforce of over 500 million people,

14:15 a democracy that though imperfect offers

14:17 familiar systems and perhaps most importantly,

14:20 a market large enough to buy what it makes.

14:23 What makes India so attractive to global companies is a combination

14:25 of domestic demand and export potential that few others [music] have.

14:29 Geopolitical turmoil is also letting it play the little

14:32 finger chaos as a latter strategy as well.

14:34 The country isn't tied to the US or China, which means it can trade with both.

14:39 It's buying cheap oil from Russia, importing chips from Taiwan,

14:42 buying defense systems from France,

14:43 and still attracting record US investment in tech and manufacturing.

14:47 That kind of flexibility is rare,

14:49 and in a fractured world, it's a major advantage.

14:52 Now, of course, economists have been predicting

14:54 China's inevitable collapse for almost 40 years now.

14:56 So, it's also worth considering this opportunity in the context that China

15:00 is not just going to step aside and let it happen.

15:03 From that end, we've made a full

15:04 collection of videos looking at China's major advantages

15:06 and current headwinds that you should be able to click to on your screen now.

15:10 Thanks for watching, mate.

15:11 Bye.