Session Summary
China is in steady recovery from asset correction, while India expands with +7% GDP growth.
China shifts from “growth at all costs” to profitable growth and is in the midst of an asset price recovery. Since 2023, China is beginning its recovery after a huge decline in asset prices, particularly in equities and real estate, by 30-40%. Due to the US-China trade war and weaker global growth, domestic businesses now contend with fierce competition, price wars, and reduced investment. In response, the market is reallocating productive resources from less efficient entities to more competitive enterprises, reflecting a shift in companies’ mindset from growth at all costs to improved cash flows and more profitable growth.
In contrast, India is expanding and has achieved impressive market returns (16%) over the past four decades. The country has significant advantages over China in resources and is experiencing a resurgence in its macroeconomic environment, supported by strong micro-level developments. For instance, India’s entrepreneurial spirit, family-run corporations, and evolving consumer behaviour are driving consumption-led investments. Additionally, India offers more favourable demographic dividend with its young population.
While China’s prospects hinge on government stimulus to boost consumption amidst a balance sheet recession, India must focus on enhancing its infrastructure and manufacturing capacities for sustainable growth. The critical question for China is whether recent and upcoming stimulus measures will help to reverse deflationary pressures and improve nominal earnings. India can benefit from the China+1 phenomenon by investing in infrastructure and supply chains to capitalize on the shift towards higher-end manufacturing. Although India’s strong services sector currently drives 7% GDP growth, enhancing its infrastructure like what China did flawlessly in the past decades is essential for long-term economic development.
Evolving power dynamics unlocks opportunities for ASEAN and India amid US-China tensions
If we believe that US-China relations have followed five 20-year cycles, we are entering a new one. The US-China relationship has gone through five cycles, from being allies during World War II to hostility during the Cold War, and warming up again after Nixon’s visit in the 1970s, which fuelled China’s economic growth. Today, a new phase of hostility (2018-2038) is marked by tariffs and sanctions.
ASEAN and India are net beneficiaries of the China+1 strategy for diversification and labour competitiveness. ASEAN is an attractive destination for Chinese businesses looking to diversify, with its labor competitiveness and ability to navigate complexities. India, with favourable demographics, has the potential to capitalize on the China+1 strategy, especially as it develops its manufacturing base and maintains friendly relations with the US.
The competition for leadership in the Indian Ocean to benefit Malaysia. China’s pursuit of energy security and its efforts to secure trade routes in the Indian Ocean have raised concerns for both the US and India. India, aligning with the US, may benefit from this positioning by opening up significant business opportunities in Malaysia, particularly around the Straits of Malacca, a vital trade route connecting the Pacific and Indian Oceans.
Growth (Potatoes) opportunities can be seized through investment strategies in India, China, and ASEAN
Investment in industries benefiting from the “Make in India” initiative and Production-Linked schemes is essential. The Indian government’s recent policy measures are geared towards manufacturing and infrastructure investments. These policies aim to achieve sustainable growth, allowing investors to capitalize on foreign direct investment flows from the China+1 strategy and reduce India’s competitiveness gap with China.
Active investors have significant opportunities in China’s large market. Put into scale, China’s GDP is larger than India, ASEAN, South Korea, and Japan combined, is expected to hit $19trn GDP next year. Supported by strong retail sales, China offers tremendous value for active investors who can identify businesses that will sustain revenue growth and margins.
ASEAN is perceived as a safe harbour for investments amid global power shifts. ASEAN benefits from collaboration with both China and India. The China+1 strategy has led to ASEAN foreign direct investment flows outweighing India’s by fourfold. India’s growing relationship with ASEAN is evident in sectors like hospitality in Malaysia, while Malaysia can leverage its strategic position at the Straits of Malacca, a crucial trade route, amid great power contestations.