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Tuesday, May 21, 2024

The Global Shift: Drisking from China

If world leaders were on TikTok, “Drisk” would be trending. It’s the talk of the town, a geopolitical obsession aimed at the one and only China. Countries are trying to loosen the dragon’s claws on global supply chains, attempting to reduce their dependence on Chinese suppliers. It sounds moderate, almost surgical, a far cry from outright decoupling, but it has started biting China’s prospects.

China’s Economic Contraction

Data released over the past month proves this. Manufacturing in China contracted in the month of October. Exports shrank by 6.4% in October compared to last year. While this was unexpected, it came on the heels of China’s worst quarter, which only made matters worse.

The Global Shift: Drisking from China

During the period of July to September this year, foreign direct investment (FDI) hit its first-ever quarterly deficit in China, a deficit of $1.8 billion. This was a historic low. It is bound to have long-term consequences for Beijing, which is also looking at a weakening Yuan, decreased capital investments, clipped economic growth potential, and worse, unemployment. Remember, the unemployment rate in China is already at a record height. This is not good news for the world’s second-largest economy.The Global Shift: Drisking from China

But China has only itself to blame for all of this. Companies say China has become “uninvestable” with its anti-espionage law, the multiple trades exit bands, and slow regulatory approvals. So this past year, foreign investors have been moving away from Beijing. From electric vehicle batteries to pharmaceutical supplies, all have been exploring alternatives.

The Shift in the Pharmaceutical Industry

Especially the pharma companies. For nearly two decades, China was their favorite, the preferred location for drug makers, be it for pharmaceutical research or manufacturing, and this was due to its low cost and speed. But now, the West is asking its companies to drisk their supply chains, and the same companies are icing Beijing out.The Global Shift: Drisking from China

And when one door closes in China, another opens in India. The Indian pharmaceutical industry is worth $42 billion, but now it is booming more than ever. Reports say it is benefiting from Beijing’s pharma workouts.

Western pharma companies outsource drug development to something called CDMOs, that’s Contract Development and Manufacturing Organizations. These companies are based in countries like India and China. In India, the CDMO industry is worth $15.6 billion. In China, it’s over $27 billion. But with drisking, Indian CDMOs are seeing a boost. Some of them have seen sales grow by 25 to 30%. Revenues are expected to grow by over 11% annually for the next 5 years.

The Global Shift: Drisking from China

The Rise of India

So, Indian companies are projected to grow faster. And that’s not all. Greenfield investments have also seen a drop. Now, what is a Greenfield investment? It is where a parent company creates a subsidiary in a different country. American and European companies are moving away from China. Such investments have dropped by $20 billion compared to last year.

Meanwhile, in India, Greenfield investments have shot up by $65 billion between 2021 and 2022. That’s an increase of 400%. So the shift is evident, and China is feeling it. It is reacting almost like a jilted lover.

Beijing despises the China plus one strategy. For China, three is a crowd. But the West disagrees and for a change, it is walking the talk, slowly but surely drisking from China.

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