Navigating geopolitical shifts: opportunities and challenges in a 'China plus one' world

China's economic dynamics: Foreign direct investment into China

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An array of anecdotal evidence supports this trend. Business association surveys, as reported by the Rhodium Group, indicate that a significant portion of EU, UK, Japanese, and US companies do not plan to increase investments in China. Moreover, around 20% of UK and German firms, along with 10% of US firms, express intentions to reduce their investments in China.

 

Emerging opportunities in a 'Multipolar World’

While the concept of decoupling may seem straightforward, the reality is more complex. Modern supply chains are deeply entrenched and intricately woven through the global trading network, a result of the cost-driven globalisation era. China still possesses substantial advantages in logistics, infrastructure, and low outbound shipping costs. Consequently, the shift away from China is not an instantaneous process. For instance, replicating a textile mill in Bangladesh is relatively straightforward, whereas reproducing a factory manufacturing advanced electronic components is a more challenging endeavour.

Nevertheless, this shift away from China presents lucrative opportunities for investors who can anticipate and leverage the dynamics of this emerging 'multipolar world.' Several countries are poised to benefit from this trend, with India, Vietnam, and Mexico emerging as key players.

 

India's ascendancy: A key beneficiary

India has seen a substantial uptick in its role as a global supplier. Wal-Mart, for instance, increased its US imports from India from 2% in 2018 to one quarter between January and August 2023, while simultaneously reducing Chinese imports from 80% to 60% in the same period.^[1]

Apple is also seeking to diversify its manufacturing operations by expanding iPhone production in India, aiming to assemble a quarter of its total production there and scale up to 50 million devices annually in the coming years.^[2]

 

Vietnam: A crucial player in Southeast Asia

In Southeast Asia, Vietnam has become a crucial supplier for several industries. Foreign Direct Investment (FDI) into Vietnam reached a record $23.2bn in 2023, whilst future FDI pledged rose over 32% year on year to $36.6bn.^[3]

Samsung, a major player in the tech industry, now considers Vietnam its "key production site," producing around half of its smartphones there.^[4] Similarly, LG has invested significantly in Vietnam to produce appliances and cameras.^[5]

 

Mexico's nearshoring advantage

Mexico, in proximity to the United States, has positioned itself as a key beneficiary of 'nearshoring.' The preference for sourcing goods closer to home by the US, coupled with geopolitical trade barriers, has led to increased investment in Mexico. Industrial vacancy rates near the US border were remarkably low in 2022 as investment poured in to manufacture products such as communications and computer equipment.^[6]

Autos are also leading the charge, with announced investments including $870m from BMW, $764m from VW, $700m from Nissan and $200m from Stellantis in addition to a $5b Tesla investment.^[7]

 

Investing in Emerging Markets: Navigating uncertainties

In conclusion, as the tides of geopolitical relations continue to shape the global economic landscape, investors stand at a crossroads. The 'China Plus One' strategy underscores a pivotal shift in approach, with diversification becoming a strategic imperative. While decoupling from China is a nuanced challenge, the emerging opportunities in India, Vietnam, and Mexico showcase the resilience of global markets. There is an emphasised need for strategic foresight in navigating the unpredictable currents of today's investment landscape. As we embrace this 'multipolar world,' the key lies in adapting to change, seizing emerging prospects, and navigating uncertainties with informed precision.

With Arbuthnot Latham's experts, skilled in identifying trends and complexities, investors can feel assured that the investment team is able to navigate these uncertainties and position client portfolios for success in the dynamic global marketplace. The journey continues, and the opportunities are as vast as the evolving global economic canvas.

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[1] Walmart shifts to India from China for cheaper imports (nbcnews.com)

[2] Apple Wants To Make 1-In-4 iPhones In India, Reports Say (forbes.com)

[3] Vietnam Foreign Direct Investment (tradingeconomics.com) - SỐ LIỆU ĐẦU TƯ TRỰC TIẾP NƯỚC NGOÀI (mpi.gov.vn)

[4] Samsung, LG plan multi-billion-dollar additional investment in Vietnam | Reuters

[5] Vietnam becomes vital link in supply chain as business pivots from China (ft.com)

[6] The Case For Industrial Real Estate in Mexico.pdf (pficdn.com)

[7] Polar_Capital_Emerging_Market_Stars_-_Mexico.pdf (polarcapital.co.uk)