India’s market larger than China, still, lessons worth under standing

According to Morgan Stanley, India crossed China to become the largest market in the emerging markets (EM) universe at the end of August. How times have changed.

While it is easy and fashionable to dismiss China today, one should not lose sight of the country’s accomplishments. It is true that China is going through a balance sheet recession, with a property market bust and weak consumer confidence. Consumption has slowed and many are predicting a “Japanification” of the country, implying it will take decades to fully recover.

However, we must acknowledge the progress China has made in gaining leadership in higher value-added industries and becoming self-reliant in key technologies. The Made in China 2025 policy, which aimed at global leadership, self-reliance, and dominance in critical technologies, has largely played out successfully.

There is much for India to learn from China. Their progress in creating global scale and industry-leading companies across sunrise sectors is worth learning.

Artificial intelligence (AI) and the energy transition are two of the biggest structural themes over the coming decades, which will fundamentally reshape economies and business. Trillions of dollars will be invested. The US leads in Al, with China a close second, despite the constraints imposed by the US.

However, in energy transition, China is dominant, with leadership across renewables, nuclear, electric vehicles and lithium batteries. China’s leadership in renewables is well-known and control 50- 70 per cent of the renewable supply chain. Many countries, including India, are trying to reduce dependence on China for renewable.

What China has achieved in battery energy storage technology, particularly in lithium batteries, is both impressive and scary. Today, China has 80 per cent global market share, and has five times the production capacity of the rest of the world combined.

Chinese (LFP) batteries are now considered the most cost-efficient and safest technology. CATL spends more on battery research than the Japanese and Korean companies combined. In Battery Chemicals, China has over 90 per cent of the global market.

The Chinese auto industry has leapfrogged Western incumbents, which had a 100-year head start in internal combustion engines and power trains. What China has managed to accomplish in certain new industries is incredible.

The playbook is similar: China first quickly adopts new technologies and becomes the largest market, using industrial policy and subsidies to ensure global scale for local players with technology leadership. Subsequently, it uses capital to scale up massively and control the supply chain. Their execution has been breathtaking.

The rest of the world including India will have to figure out how to handle this playbook of dominance China is employing across industries. It will have to be some combination of trade restrictions and industrial policy to give our domestic industry the time and scale to compete.