Arvind's Newsletter

1.World Bank president Ajay Banga said India has only a three-to-five-year window to cash in on the China+1 opportunity

India has proven more resilient and emerged from the pandemic relatively stronger than others, Banga said, adding that he is more optimistic than before as the country is focusing on growth and jobs, the two things crucial to reducing poverty.

“India's opportunity currently is to cash in on the China+1 opportunity,” Banga said. “This opportunity will not stay open for 10 years. This is a three-to-five-year opportunity whenthe supply chains start relocating or… let’s say not relocating but adding on in another location.”

China+1, a post-Covid development, refers to the establishment of manufacturing elsewhere to address supply chain disruption risks because of concentration in one country.

But China plus one is not really minus China

India has, however, become more protectionist in an attempt to build its domestic manufacturing base. New Delhi has turned its back on a regional FTA implemented by Beijing. It has also raised import duties.

Both actions make it difficult to seize the 'China Plus One' opportunity within a narrow window. Apple's experience with exporting mobile handsets made by its contract manufacturer in India brings out this difficulty.

It has had trouble seeding the ecosystem without help from Chinese vendors.To make the most of a structural shift in global manufacturing, India needs both trade and investment from China.

2.Re-shoring supply chains: What does it mean for investors? This article by the Capital Group evaluates the re-shoring and the China + 1 opportunity in detail and is a worthwhile long read.

Some excerpts from the article:

“Fast forward to 2023, and many companies- in some cases spurred by massive government subsidies — are taking big steps to diversify their supply chains, focusing on reliability and robustness over cost and efficiency. That means bringing some manufacturing back home, or “re-shoring” and moving some of it to other countries (China plus one).”

“The poster child for this development is Taiwan Semiconductor Manufacturing Company or TSMC, the world's largest semiconductor foundry. To expand its global reach, TSMC is building new manufacturing plants in Arizona and Japan. Semiconductors have become such a sensitive issue, given their use in the defense industry, that the US government has placed aggressive restrictions on where and how they can be exported.”

Other examples abound in the tech sector and elsewhere. Apple announced in September that it would start producing the iPhone 14 in India, adding to its manufacturing capabilities in China, the Czech Republic and South Korea among others. In the auto sector, Tesla added to its US and China manufacturing hubs last year by opening its first European outpost in Gruenheide, Germany.”

““A key question is whether the China+1 strategy will be scalable or not,”…“Can you add a new plant in India or Mexico, for example, and scale up production as needed? Is the labour and power supply sufficient? Is logistics infrastructure in place? Can management handle the added complexity?””

“According to a 2021 survey of foreign companies doing business in China conducted by AmCham Shanghai, the top destinations for redirected investments were Southeast Asia, Mexico, India and the United States. However, only 63 of the 338 companies surveyed said they had such plans, which suggests the process of re-shoring may be slower and more deliberate than some market participants are expecting.

“It could take a decade for companies to fully transition,” she adds. “But the process has certainly started, and I think it will be one of the more important investment themes of the 2020s.””

“India-thanks to its proximity to China, a well-educated labour force, and a fast-growing, business-friendly economy may be the best-positioned country to capitalise on supply chain diversification. India’s government has taken bold steps to encourage the expansion of manufacturing operations, particularly in the smartphone space, where Apple works with contractors such as Foxconn to build the latest iPhones. The manufacturing sector is expected to accelerate over the next decade, driving growth in the Indian economy and boosting other industries such as banking, energy and telecommunications.

“India is arguably better positioned today than China was 20 years ago.”

3.Google has piloted an AI-powered platform to write news articles, according to reports; technology has been demo-ed with The New York Times, Wall Street Journal, and more

4.Embraer, a Brazilian aircraft manufacturer plans to start making flying taxis within the next two years. Embraer will build a factory in Taubate, near Sao Paulo, manufacturing electric-powered vertical take-off aircrafts, and wants to make a prototype this year. It’s hoped a trip will cost $50 to $100 per passenger and will reduce road congestion.

Flying taxis are gathering pace: U.S. regulators released a timeline for allowing them by 2025, and a British firm carried out a flight test this week of its five-seater air taxi, with U.K. authorities saying they are ready to certify it once criteria have been met.

5.If you havent yet seen Christopher Nolan’s Oppenheimer this weekend, then you may decide after reading the following reviews -the first from Wendy Ide of the Guardian and the second by Henry Oliver in the Common Reader.