China, which was the biggest workshop for supply chain, is losing steam. This will have a consequential impact on ASEAN growth, which is portrayed as the alternative to China for supply chain. China - ASEAN economies are intertwined. If China grows, ASEAN economy gears up and vice-versa.

China’s economic growth has been dragged into progressive deceleration. Its GDP growth fell to 3 percent in 2022 and is projected to fall further in 2023. It has entered deflation, raising a paranoia for recession, akin to Japan.

Concern on Chinese slow growth reverberated in ASEAN. China has been the biggest trading partner of ASEAN. Lacklustre domestic demand led ASEAN to depend on trade for growth. Till 2021, China was both biggest export destination and import source for ASEAN. But in 2022 China was toppled by USA for as the biggest export destination for ASEAN.

These translate that slow growth in China had a cascading impact on ASEAN. In 2022, ASEAN exports to China increased merely by 2.9 percent, against 28.7 percent in 2021. These led USA to overtake China in exports. Export to USA increased by 13.7percent.

Global institutes like IMF and OECD are uncertain for sustainable growth in ASEAN. They predicted an erratic growth for ASEAN, given the slow growth of China.

This diversification from China to USA has become significant for ASEAN growth. Had this diversification not been made, ASEAN growth would have been vulnerable, owing to China’s fall.

In addition, the contentious issue between China and ASEAN, like South China sea , particularly with Vietnam , continues a paradox for mitigating the political wranglings.

India has emerged as the fifth largest global economy. The growth trajectory paves the way for India to be the 3rd largest economy by the end of this decade. It is the biggest pool of working population, after China sinks in aging. Rural consumption emerged as the backbone for growth.

To increase its political ascendancy and economic influences in South East Asia, mainly in ASEAN, China was asserting for RCEP (Regional Comprehensive Economic Partnership), where USA and India are not members. It is colloquially known as China led trade block .In other words, China’s fall in growth leads to uncertainty for RCEP. It includes ASEAN 10 plus China, Australia, New Zealand, South Korea, Japan.

Besides, China has been using soft loan mechanism for development of infrastructure in the ASEAN through BRI (Belt and Road Initiative), which acts a greater political and economic influence in the region. But, BRI is losing steam due to rising debt burden of the members. Sri Lanka lost its Hambantota Port and Italy withdrew from the project.

New Delhi declaration in G-20 summit for IMEC (India- Middle east – European Corridor) will pose a major challenge to Chinese BRI (Belt and Road Infrastructure). IMEC will transport goods from India to Europe through UAE, Saudi Arab, Jordon and Israel. It is shorter than the Suez Canal route.

According to IMF, the growth projections of 4 majors of ASEAN are lower than India in 2023 and 2024. While India’s growth rates are projected at 5.2 percent and 6.3 percent in 2023 and 2024 respectively, growth projections for ASEAN majors Singapore, Thailand, Malaysia and Indonesia are at lower pace. Only Vietnam poses a challenge to India’s growth.

Given these and ASEAN growth dependency on two political rivals, viz, USA and China, ASEAN growth looms on vulnerability. This warrants a rethink for dependency on ASEAN for alternative supply chain to China.

In contrast, India has emerged with a new era of manufacturing potential by various policy measures in recent years. Thanks to PLI (Productivity Linked Incentive) scheme, which bolstered India’s manufacturing competition. Phrase “factory Asia” for ASEAN is losing its attraction, with India emerging a major bet for the investors.

Given the launch of PLI scheme three years ago, investment soared in the new industries in India. According to NITI Aayog, up to June 2023 since PLI was launched in 2020, fresh investment in medical devices increased by about 80 percent of the expected investment and 60 percent in large scale electronics manufacturing , including mobile phones, of the expected investment. .

These enhanced both output and exports of these sectors. During 2014-15 to 2022-23, value of electronic goods output increased from US$ 31 billion to US $ 103 billion, up by 300 percent and exports increased from US$ 6 billion to US$ 23 billion, up nearly by 400 percent. The noteworthy growth was in manufacturing mobile phones. Production of mobile phones increased from US $ 3 billion to US$ 44 billion, up by nearly 1,700 percent. India has become the second biggest manufacturer of mobile phones in the world. Exports increased by 6,000 percent, from US$ 0.26 billion to US$ 11 billion.

Experts point out that, India is inching towards manufacturing powerhouse by virtue of its new policy measures and global political outreach, coupled with fast growth in digitization and IT services. To this end, outshining ASEAN or blunting Chinese hegemony in ‘factory world” is a possibility. (IPA Service)