China is witnessing sharp dips in its core areas of economy. Factory activity in China shrank for a second straight month in June, underscoring the shaky economic recovery of China, ahead of a key political gathering expected to focus on deepening reform.
The manufacturing purchasing managers’ index (PMI) which is a key measure of factory output, was registered at 49.5 in June, identical to May’s figures according to the National Bureau of Statistics (NBS). A PMI figure below 50 indicates a decline activity, while anything above it indicates an expansion. Contraction in the manufacturing sector is a worrying sign for the world’s second-largest economy, which has struggled to regain momentum since late 2022, when Beijing scrapped tough pandemic policies that has weighed heavily on growth.
China’s non-manufacturing PMI which takes activity in the services sector in account was registered at 50.5, but despite the growth, the figure represented a drop from 51.1 notched the previous month.
The pressure is augmenting on the Chinese policymakers to fix the cracks seen in the economy. They are due to convene in mid July in Beijing for a highly anticipated political gathering expected to focus on economic recovery. Among the hurdles policymakers face are a prolonged debt crisis in the once-roaring property sector, sluggish consumption and high unemployment especially amongst its youth.
The Chinese economic slump is evident when another significant development has been observed that India is fit bridging the gap with China and Vietnam in terms of mobile phone exports. While FY24 mobile exports from China and Vietnam fell 2.78 per cent and 17.6 per cent respectively, from the year before, exports from India surged 40.5 per cent to reach $15.6 billion in FY24 from $11.1 billion in FY23, an increase of $4.5 billion.
Furthermore, India has captured nearly 50% of the reduction in corresponding mobile phone exports from China and Vietnam. This suggests that the objective of gaining a bulk of the supply chain shift from China has been met. No doubt China still remains the top exporter of mobile phones, India appears to be catching up. Phones ‘Made in India’ are going places as China witnesses a dip in its share.
According to International Trade Centre (ITC) data, Chinese mobile exports dropped from $136.3 billion in FY23 to 132.5 billion in FY24, a 2.8 per cent reduction, amounting to a 3.8 billion decline in total exports. Total cumulative reduction in exports from both China and Vietnam amounted to $9.4 billion.
Experts said that India is grabbing its opportunity in mobile phone exports space is a big win for India. In the wake of the geopolitical tensions, India has been attempting to woo companies deploying China+1 strategy to diversify supply chains and manufacturing.
The smartphone PLI schemes has been a success, particularly with Apple having made in India its second base for iPhone manufacturing after China. The Cupertino-based giant started producing iPhones in India under the PLI schemes announced in 2020.
Three of its key iPhone vendors, namely, Foxconn, Pegatron and Wistron— set up factories in India following the scheme’s launch. Apple has doubled its production and exports from India in the last two fiscal years. iPhone exports contribute 65 per cent of India’s $15.6 billion mobile exports and over one-third of India’s electronic exports, which crossed $29 billion in FY24.
Moreover, India as an investment destination is doing extremely well with the country witnessing high foreign remittances, foreign direct investment (FDI) and foreign institutional investment (FII) inflows. The present regime has ended or simplified more than 40,000 compliances last year. India is monitoring, facilitating and keeping up with the market’s expectations and investors’ wants.
Chinese economy which seems to be losing its steam, however, its not a total lost cause for China yet. Thus, Indian economy which has got a good start at the most critical times cannot become complacent with its pace. India needs to maintain and invigorate the momentum of its growth and its policy framework mechanisms.
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