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  • Writer's pictureRaise and Deploy Team

If Not China...

Updated: Jul 25, 2023

2023 was meant to be a big year for China. Yet we’re halfway into the year and in the last month alone, JP Morgan, Goldman Sachs, Citi, HSBC, Nomura, HSBC and S&P have all slashed their growth forecasts for the superpower’s economy. Where there was meant to be a post-covid boom, there’s a debt crisis, a shrinking economy and, in a move that somewhat mirrors China’s own attempts at de-dollarization, a push from many in the West to ‘de-risk’ themselves from China – although, and they cannot stress this enough, this is not a ‘decoupling’.

Domestic Issues Putting Off Overseas Investment

While China’s actions abroad are undoubtedly having an impact on the nation’s ability to attract overseas trade and investment, its domestic problems are the biggest deterrent.

China's labor productivity, once a cornerstone of its growth, is weakening and the famously inexpensive Chinese labor is now not so inexpensive, with manufacturing wages doubling between 2013 and 2022. The country’s property market, one of the driving forces of its economy, is stuttering, while President Xi Jinping’s regulatory crackdown on tech, finance and gaming have aggravated an uncertain investment climate. Meanwhile, the long term impact of the country’s infamous zero-Covid policy on global supply chains has caused many businesses to reassess their reliance on China. Investing and trading in the country now comes with added reputational risk too, with the Chinese Communist Party’s alleged treatment of the Uyghur muslims and ongoing disputes over Taiwan too much for some businesses to stomach.

This is all being confounded by lower consuming spending, rising interest rates and high inflation in the West causing a decline in China-produced goods.

Despite all this, those slashed growth forecasts are still hovering around 5%, which isn’t to be sniffed at, and US trade with its trade war foe remains at record levels. There is a suspicion, however, that much of this is the result of companies locked into long contracts that would be too costly to break. This is supported by the tanking of greenfield investments and the fact that Apple, Sony, Dell, Samsung and LG have all begun or at least signaled plans to move parts of their production away from China.

The Alternatives


The biggest challenger to China’s economic throne is clearly India. As we explored in our latest Raise & Deploy newsletter, according to the June 2023 figures from the OECD, India is expected to outperform China in terms of GDP in 2023 and 2024.

Not only are manufacturing wages considerably lower, but with China’s birth rate in serious decline, India is projected to surpass China as the world's most populous country later this year. In light of this, Bharati is increasingly seen as an investment destination, particularly due to its improving infrastructure and renewable energy needs. Plus, in recent years, India has relaxed administrative regulations for foreign investors in a number of industrial sectors by abolishing the requirement for approval by the Reserve Bank of India under certain conditions.

India’s Prime Minister, Narendra Modi, has made chip manufacturing a core focus of his leveling up plans, with Apple CEO Tim Cook’s April visit to the country a signal of how serious the country – and Apple – are taking the move. Around 95% of Apple products are still made in China, but JP Morgan predicts this will drop to 75% by 2025, with India the likely benefactor.

South East Asia

In 2023, Vietnam saw over $20bn in FDI flow into its economy, mainly from Japan, Singapore, and China itself, but Western investment is on the rise too. The US share of imports from Vietnam has risen almost 2% since 2018, with the Netherlands, France, Luxembourg and Germany also inputting large sums from the EU. Major companies such as Apple, Nike, Adidas, and Samsung have also already shifted some of their manufacturing operations to Vietnam.

It’s a similar story in Thailand where between January and June this year, investment applications are up 70% from a year earlier, driven by foreign investors' projects in the electronics, food, and auto sectors. More recently, the kingdom has established itself as a market leader in the production of electric vehicles. The surprising stability of the Thai baht is a further plus.

Malaysia has also been successful in attracting tech investments with notable investments include a $339 million commitment from US chip giant Micron and the expansion of operations by Jabil, a US company manufacturing iPhone covers.


For US businesses in particular, Mexico has emerged as a compelling alternative to China. In the first four months of this year, trade between the United States and Mexico reached $263bn, solidifying Mexico's position as America's top trading partner. Accounting for 15.4% of goods exported and imported by the US, Mexico surpassed both Canada and China, with trade totals of 15.2% and 12%, respectively. The shift towards Mexico reflects US companies' growing inclination to "nearshore" their operations and mitigate the risks associated with investing heavily in China. Basic geography plays a crucial role in this trend, as shipping goods from China to the United States typically takes a month or longer. In contrast, factories in Mexico and US retailers are able to bridge the distance within a span of just two weeks.

So Where Next?

Earlier this year, the Economist coined the phrase ‘Atlasia’ for what it calls the ‘alternative Asian supply chain’. That is: Japan, South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, Cambodia, Bangladesh and India. ‘Atlasia’, the magazine posited, could, as a collective, provide a genuine alternative to China. The problem with this, it also pointed out, is that these are multiple countries while China is one vast single market. One which offers unrivaled access to a highly skilled, affordable workforce supported by solid infrastructure.

And it’s this fundamental truth that many overseas firms are facing: No, investment in China is currently not a particularly attractive option, but this is still China. ‘Derisking’ is going to be a slow and iterative process. The sheer size of India and the progress it’s making as an economy puts it firmly at the front of the queue, but, as the Economist also pointed out, it took China over 30 years to become the multi-trillion dollar tech powerhouse we know today. These are early days in a new world and a lot will change in that time. For those committed, however, it’s all about weighing up your needs and figuring out ‘well if not China, then where?’

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