For years, China has been Asia’s know-how powerhouse.
It’s dwelling to what as soon as have been a number of the world’s most precious firms, from Tencent to Alibaba. It’s the place a lot of the world’s iPhones and different electronics merchandise are produced. And it’s now a severe participant in electrical automobiles.
However a shift seems to be underway, with different nations in Asia attempting to take China’s crown.
India is one in all these contenders. New Delhi has sought to woo overseas tech firms and has been more and more profitable, with giants like Apple growing their presence within the nation.
India is seeking to enhance areas reminiscent of high-tech electronics and semiconductor manufacturing, in addition to assist its burgeoning but challenged startup scene.
On the similar time, overseas corporations wish to diversify away from China amid growing tensions between Washington and Beijing. Robust Covid-19 restrictions enacted by the Chinese language authorities, which disrupted operations for corporations like Apple, highlighted the necessity for firms to cut back publicity to the nation.
India may stand to learn. What was as soon as a market that overseas corporations perceived as having an excessive amount of crimson tape and too many enterprise hurdles is now turning into a viable different to China. However it can take numerous effort for India to wrest China’s tech title.
Within the newest episode of CNBC Tech’s “Past the Valley” podcast — which you’ll hearken to above — Tom Chitty and I talk about whether or not India can problem China as Asia’s tech powerhouse, and what the nation’s benefits and downsides are.
You probably have any ideas on this or earlier episodes, please e mail us on beyondthevalley@cnbc.com.
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Here’s a transcript of the episode of “Past the Valley” launched on Apr. 3, 2024. It has been edited for readability.
Tom Chitty: For years China has been Asia’s tech powerhouse the place the world’s electronics and a number of the largest firms on the planet are positioned. However as China’s financial system continues to wrestle and commerce tensions between Washington and Beijing present no indicators of easing, many world tech corporations are trying carefully at India. The nation is about to turn out to be the world’s third-largest financial system by 2030. And a part of that plan is making a play to usher in excessive tech manufacturing to its shores, from Apple’s iPhones to semiconductors, because it units itself as much as problem China as the important thing tech hub in Asia. How’s your week been?
Arjun Kharpal: It has been nice Tom. Had a pleasant lengthy weekend. It is a lengthy weekend right here within the U.Okay. In order that was good. Did some gardening. I prefer to prepare dinner. Do you know this?
Tom Chitty: Sure I did since you sliced off your finger.
Arjun Kharpal: I did slice off my finger.
Tom Chitty: Let’s simply make clear … a little bit of it.
Arjun Kharpal: It is rising again. I am simply it now and it is rising again, which is nice. So I’ve simply planted some herbs. Obtained chives in there, oregano.
Tom Chitty: Is that this the time of 12 months to plant?
Arjun Kharpal: That is the time. In order that they’re indoors proper now. They obtained to enter little kind of child herbs. After which they go exterior.
Tom Chitty: I imply, how do you discover the time, Arjun? You’re a miracle.
Arjun Kharpal: My granddad is nice gardener. So I kind of went spherical his and I stated are you able to assist me plant these? And he obtained all of the compost out. In any case, they’re good child herbs, in all probability in about three to 4 weeks. After which I will put them within the backyard. So by the summer time, once I’m you understand, actually cooking it up on the barbecue and no matter else occurring. I am attempting to develop lemongrass, clearly utilized in numerous Thai dishes. I do not know if we obtained the local weather. However we’ll see.
Tom Chitty: You will in all probability want a greenhouse for that.
Arjun Kharpal: Haven’t got that. However we hope for a pleasant heat summer time.
Tom Chitty: If any of our listeners did not know, Arjun is a giant barbecuer.
Arjun Kharpal: Love barbecue.
Tom Chitty: Are you a coal man or a gasoline?
Arjun Kharpal: I am a coal man. Yeah. It is simply the flavour. However I am gonna get into smoking. Not cigarettes, or vapes or something like that. However the smoking of meats and you understand different meals. So I will attempt that subsequent. That is my subsequent huge challenge. We’ll see. We’ll see.
Tom Chitty: We’re into spring. That is all we’ll speak about now for the following three 4 months.
Arjun Kharpal: Barbecue and herbs
Tom Chitty: Earlier than we get into our good story, we have to clearly hear Arjun’s stat of the week. I am on a little bit of a run so let’s examine how we do that week.
Arjun Kharpal: Okay, this one is a surprisingly low quantity. Normally it is like billions, trillions. 92, simply 92. 92 folks. I believe that is correct.
Tom Chitty: That needs to be the tagline for this podcast. I believe that is correct. Simply to remind our listeners that when you have any questions on what we have mentioned this week, or previous episodes, then e mail beyondthevalley@cnbc.com. However again to our foremost story. India has made a giant tech push lately, Arjun, what’s been occurring?
Arjun Kharpal: It has been an attention-grabbing, two, three years for India, I believe when it comes to attempting to get some momentum into its tech sector. And there appears to be kind of a shift that occurred about three years in the past, maybe, the place India was saying, properly, we wish to be a know-how powerhouse. And the groundwork was being laid for this, you understand, few years prior when it comes to attempting to make regulation higher these type of various things. However successfully, India is now gunning to be a know-how powerhouse in just a few fronts. And simply to attempt to break that down. You talked about in the beginning, China has usually been the kind of huge know-how powerhouse of Asia. Now China has been very sturdy on manufacturing, electronics manufacturing, a lot of the world’s electronics are manufactured in China, but additionally on account of its kind of prowess in know-how, it has invested in areas like semiconductors, like monetary know-how, you understand, ecommerce, so many EVs, so many various areas in China and it appears India is these areas now as ways in which it needs to kind of catch up and be recognized to be sturdy on this space and a type of is semiconductors. India is on a giant semiconductor push, we are able to dig a bit extra into that. One other one is excessive tech manufacturing, once more, one thing that China has usually been sturdy into an India’s attempting to place itself in its place, plus, it does have a reasonably vibrant but challenged in the intervening time startup scene as properly. So there’s many areas now India’s attempting to push, electrical automobiles once more, one other space that it is that it is fairly carefully. So proper now, it is a huge virtually advertising push on the world stage from India to say, hey, I do know China has kind of been dominant, however China has had its points. Why do not you have a look at India now? And that’s the message actually from India at this level to the worldwide tech neighborhood.
Tom Chitty: India’s Prime Minister, Narendra Modi has actually pushed for this, not simply in the previous few years, however that is kind of a plan that is been cooking for some time. Sorry, to deliver it again to meals, along with his Made In India initiative to attract that overseas funding into the nation. So are we now in a spot the place it is kind of the right timing due to what else is occurring in China, with its struggles, that truly this is not simply them simply taking benefit that it has been, you understand, this has been within the works for some time?
Arjun Kharpal: I believe that is an effective way to place it Tom, as a result of Modi, and beneath his management, since he turned prime minister has been fairly clear that he needs much more manufacturing to be in India. The Made In India program, as you stated, has been a key a part of that to attempt to onshore extra manufacturing of know-how, but additionally different issues too. However China has nonetheless for a few years, dominated. And I believe, what modified the sport fairly considerably, I would prefer to say kind of started in, say, 2018, so kind of roughly three, 4 years after Modi turned prime minister, Trump turned president of the U.S. And what that sparked actually was an elevated stress with China, not solely on the commerce conflict entrance, however then additionally on this know-how battle between the 2 nations and geopolitics began to essentially solid a shadow over the tech sector globally. And I believe lots of them started to take a look at China and assume, I ponder what our future appears to be like like in China. In order that was one half. You then had export restrictions, and varied different issues occur, after which COVID hit. And I believe COVID, particularly, uncovered many tech firms reliance on China. Apple was a key instance of that. Throughout COVID, the most important iPhone manufacturing unit on the earth run by Foxconn, the Taiwanese agency, you understand, had a number of incidents the place kind of manufacturing was disrupted due to the COVID restrictions in China. And there have been additionally unrest as properly throughout the manufacturing unit. So there have been varied issues that occurred, which I believe underscored firms like Apple’s reliance on China. And I believe, what occurred with COVID is that basically accelerated firms trying elsewhere, at the place can we manufacture? The place may we have the ability to arrange store? And the place is there additionally a viewers for our merchandise? And India matches all of these payments. So concurrent with that, India was doing issues like wooing these American firms, inviting them over, inviting them to arrange factories, arrange store arrange workplaces in India, on the similar time once they have been precisely on the lookout for a diversification play. And so all of this stuff got here collectively. And I believe we’re right here now, the place there’s been just a few huge actions. So one, Apple now manufactures its newest iPhones in India, not all of them, numerous them nonetheless out of China. Micron, one of many world’s largest reminiscence chip makers, has obtained approval to arrange a manufacturing unit there. I am speaking semiconductors right here as properly.
Tom Chitty: Sorry, simply to make clear Micron is an American firm?
Arjun Kharpal: Tata Electronics may also companion with Taiwan’s Powerchip Semiconductor Manufacturing Corp to once more arrange a semiconductor fabrication plant. So that you’re now seeing overseas firms start to arrange store there. And all of these efforts, the timing, come to fruition. And that is actually what’s taking place in India, kind of excessive tech sector once we’re speaking about issues like semiconductors, like electronics manufacturing at this level, versus, say, China. And it is partly India making the enterprise atmosphere barely higher. It is partly these U.S. firms and overseas firms extra broadly on the lookout for diversification away from China. And it is broadly additionally in regards to the concern for a lot of overseas firms about relying an excessive amount of on China given the geopolitics and given what they noticed in COVID.
Tom Chitty: I talked in the beginning about the truth that there’s this abundance of labor in India. And the nation did turn out to be the world’s largest inhabitants solely lately. What different causes are there for why the nation is so enticing now?
Arjun Kharpal: I believe there’s just a few causes. One, as you stated, the inhabitants measurement, proper? It is obtained a big home market of customers, identical to China had, or has even. So, you understand, in case you’re an electronics producer, or organising store in India, you understand, not solely are you able to manufacture merchandise there, however you are saying, I may promote these right here, too. There’s an enormous inhabitants. And it is a younger inhabitants, it is a tech savvy, tech ahead nation at this level, as properly. In order that’s partly one of many causes. The opposite one is there’s an enormous quantity of expert labor there. Now, that there actually must be extra. I do not assume at this level India can maintain an enormous inflow of firms eager to arrange store after which having to search out expert labor there. I do not assume there’s that a lot. However actually, it is a level the place there’s numerous expert labor, there’s engineers, that are key for electronics, key for semiconductors and different areas. They’re English talking, as properly. So in case you’re a overseas firm, in case you’re a U.S. firm and wish to arrange store there, you do not have to fret in regards to the language obstacles, as properly. In order that’s one other huge purpose. And you’re seeing extra of those overseas direct funding flows, as a result of India has tried to make it a bit of bit simpler for overseas firms to arrange store. India usually had a status of being filled with crimson tape, very bureaucratic, a spot that was very troublesome to do enterprise. Now, I am not saying that is fully gone in any respect. However there is definitely been strikes to attempt to cut back that view of India at this level.
Tom Chitty: And on the flipside, China has is now seen as relating to regulation, and conducting enterprise in that nation a bit of bit tougher than perhaps it was lately.
Arjun Kharpal: I used to be on our Squawk Field Europe present final week speaking about this. And, you understand, Karen Tso, the anchor requested, what about overseas firms now, China’s now after their financial system is beneath strain, and so forth, attempting to roll out the crimson carpet to overseas companies. And, you understand, will overseas companies make investments once more in China? And I stated, the issue China has had now’s they’ve misplaced the belief and damaged the belief of so many overseas firms. And what I imply by that’s, over the previous few years, the COVID restrictions have been so intense, and infrequently carried out in a approach that did not have numerous certainty and planning, that many overseas companies did not know kind of the right way to react, and it affected their manufacturing, it affected their their operations. But in addition, there’s been numerous regulation over the previous few years in China, that always has come out of nowhere. It has been introduced in a short time, carried out very, in a short time. And overseas firms not likely understanding the right way to react to that as properly. Buyers have misplaced belief within the Chinese language markets, and the Chinese language firms due to the quantity of regulation and this query marks of over whether or not they’ll develop. And naturally, China is having its personal financial issues as properly. And that is impacted numerous firms willingness to speculate it. After which, you understand, add on the geopolitics and the whole lot else we spoken about and it appears to be like like a really troublesome situation. On the flip facet, India is de facto rolling out its crimson carpet, as properly to numerous these overseas companies at a time, as we stated, they’re on the lookout for options. And in order that’s been a plus for them at a time when China is going through a ton of challenges. And I believe that is one of many largest points proper now for China. And what’s actually benefited India lots.
Tom Chitty: And India has now seen, a minimum of amongst a survey of 100 funds, the most well-liked rising market with buyers. And conversely, China, nonetheless enticing, nevertheless it’s in second place, alongside Brazil. And so the danger of dropping that capital goes to be fairly important to the Chinese language financial system.
Arjun Kharpal: China is vulnerable to dropping that capital. I believe the flip facet is once more, the market cannot be ignored. China, once more, large inhabitants, 1.4 billion folks, customers are rising center class, and so forth. All these structural issues that attracted these firms within the first place. Plus, a degree to make you may’t simply decouple, you understand, Apple cannot get up tomorrow, Tim Prepare dinner, CEO of Apple cannot get up tomorrow and say, you understand what? Screw it. I am shifting all my manufacturing out of China. It is inconceivable. It is inconceivable to do. However I believe the important thing level right here goes ahead, that degree of funding we have seen in China from numerous overseas firms is unlikely to be met at the present time once they’re not solely India, however truly different components of Asia as properly. Vietnam, Indonesia, Thailand, these locations have attracted some tech manufacturing as properly. And so, you understand, there’s extra competitors versus China now. And that is a problem. I might say, although, in addition to India’s finished extra lately, there was this actually fascinating interview that is come out final week, from Raghuram Rajan. He is the individual I’ve spoken to earlier than, he was once the central banker of the Reserve Financial institution of India. And he got here out and he stated, the best mistake India could make is to consider the hype about their very own progress and financial story. We have got many extra years of onerous work to do to make sure the hype is actual. Believing the hype is one thing politicians need you to consider as a result of they need you to consider that we have now arrived. However he stated it will be a severe mistake for India to succumb to that perception. He stated, a number of the largest challenges that India should grapple with in the intervening time is bettering the schooling and abilities of the workforce. And with out fixing that India will wrestle to reap the advantages of its younger inhabitants. So what I used to be saying earlier is the expert staff facet of the equation, the tech firms, notably these within the engineering facet of issues, semiconductors, excessive tech manufacturing, they want expert staff. Now, if all of those firms arrange store, the place are they getting these staff from? Is my query. I do not assume India has the provision but of that. So the joy actually is across the younger inhabitants, about our workforce, perhaps within the larger cities, for positive, that’s educated, that’s English talking, and so forth. However once more, there’s nonetheless numerous work to do within the Indian kind of tech abilities facet of issues.
Tom Chitty: That is one of many challenges, although, is not it for a democracy, proper? Modi’s operating on a restricted time period. And, you understand, his targets, and his targets will probably be centered in on when that time period ends, and but investing cash, time, effort into the younger era with schooling that can solely bear fruit over a course of a number of years. And that is the problem you face towards China, which as an authoritarian regime can look forward with that long run purpose, and make investments, understanding that it is the CCP will nonetheless be round come 20 years when you understand, the fruits of people who an funding will present.
Arjun Kharpal: Yeah, it is a huge problem. And it is one which comes with financial progress, that should proceed, in order that the inhabitants can afford issues like schooling, and so forth. And so there’s lots, there’s numerous structural issues that India must do for positive, with the intention to be an actual long run viable different and a powerhouse of tech in Asia. The groundwork is beginning to be laid and also you’re beginning to see preliminary kind of inexperienced shoots with a number of the investments we have spoken about. However I do not assume it is all tremendous constructive proper now. I believe there’s nonetheless numerous work. I believe, as Raghuram Rajan alluded to, that must be finished structurally, for India’s financial system, for India’s workforce, schooling and skilling, so as then, you understand, for there to be a inhabitants that may assist this progress of tech. And that is not there but.
Tom Chitty: I needed to speak a bit of bit extra about semiconductors for a second, as we all know, they’re in all probability an important know-how on the earth. They’re there in just about the whole lot we use day after day, is that one thing that India may feasibly turn out to be a pacesetter in when it comes to manufacturing?
Arjun Kharpal: It will likely be a troublesome ask, I believe, for India to be a producing chief. I believe proper now because it stands, the manufacturing leading edge manufacturing remains to be Taiwan, nonetheless South Korea, with the likes of TSMC, with the likes of Samsung, I believe India has some strengths in sure areas. A type of is round chip design, and packaging. These are kind of components of the provision chain that requires numerous labor and a talented workforce once more, so these are areas of assume the place they might be sturdy. One factor you will notice is Indian firms strike partnerships with say Taiwanese corporations to arrange store for manufacturing. However I doubt there will be manufacturing, essentially the most leading edge nodes. There is perhaps kind of older generations that may go into issues like autos, or home equipment or, or a few of these different areas as properly. However sure components of the provision chain, they may do very, very properly in so I believe you are going to see much more on the semiconductor entrance. The federal government has unlocked billions of {dollars} to attempt to assist bringing in semiconductor firms to their shores. In order that’s going to be, I believe, a giant a part of the technique for India on the semi entrance going ahead.
Tom Chitty: We clearly spent a lot of the episode speaking about, you understand, exterior funding, overseas funding coming into the nation. However you understand, India itself has a really thriving startup sector. How does that match into all of this?
Arjun Kharpal: Sure, thriving, and now challenged. It is not a selected India drawback, however I believe it is a kind of broader drawback. Final 12 months, funding fell to about $9.6 billion VC funding into startups. That was down from 26 billion in 2022. That is in response to a report from Bain. A part of that’s the world macro headwinds. I believe VCs have tightened their belts, as a result of the tech sector has been beneath strain with greater rates of interest, and so forth. However they’ve additionally had some particular person tales, which, you understand, what we’ll go into in a later episode. Now we have had particular person tales of firms simply spending an excessive amount of too quick, tales we have seen elsewhere within the U.S. and varied different markets as properly, that has led to difficulties. And there is nonetheless hurdles, I believe, to overseas capital influx into that. However that is not to remove from the very fact that there’s a there’s a vibrant scene there. And numerous that’s in Bangalore, someplace you’ve got been? You went there just a few years in the past, proper?
Tom Chitty: Yeah, I did. Yeah, we have been doing a journey collection. We went, we went via Goa, Bangalore, Kolkata, Delhi and Mumbai, loopy, unimaginable place vibrant, chaotic at occasions. However you understand, that is the tapestry of what’s a magical nation. However I discovered Bangalore to be truly barely completely different. It was a bit of bit extra calmer. Somewhat bit, perhaps too cool for varsity a bit of bit. It was a bit of bit extra European. There was European influences there. I believe numerous the startup scene, you understand, had been to Europe, the U.S. educated there and introduced again a few of these influences into Bangalore. I would not in all probability say it was my favourite metropolis, simply because I really like for chaos. I imply, folks have stated, oh, it is India’s Silicon Valley, which I believe is doing a disservice, I believe it is truly doubtlessly rather more attention-grabbing, you understand, when it comes to its influences from all around the globe, and it is clearly a disgrace to you understand, that they are clearly a sufferer to what we have seen throughout all startups with the dearth of funding and, you understand, a struggling world financial system. However I think about that they are additionally a part of Modi’s plans, or a minimum of I hope they’re a part of Modi’s plans inside this complete turning into a tech hub or Asia’s de facto tech hub. Do you that can ever occur? And if it does occur, when do you assume that will be?
Arjun Kharpal: I believe India’s had an ideal advertising push, let’s put it that approach over the previous couple of years. Specifically Modi, he is a daring character. And he likes to be seen on the world stage. And he is clearly been in a position to exert some affect to be sure that folks like Apple CEO, Tim Prepare dinner, and the CEO of U.S. chip firms are coming over, manufacturing, and so forth. And he is clearly tried to make India appear secure for enterprise. As a result of as we have stated, numerous these companies are scarred from the geopolitics between U.S. and China. To turn out to be a real powerhouse, when it comes to a tech hub of Asia takes years to construct up. And I believe India is within the very early levels, to place it fairly bluntly, of attempting to do this. There’s political will, which normally helps causes. There’s a number of the structural benefits we have spoken about. And naturally, a number of the disadvantages we have spoken about as properly. I believe India will probably be a giant participant in tech, doubtless, within the coming years. I believe it can take a number of the share away from China in sure areas. And I believe that it’s going to thrive in actually a lot of areas as properly. When a number of the largest firms like Apple say, you understand, we wish to make 25% of our iPhones in India, it is a huge sign to others within the electronics neighborhood, within the tech neighborhood, that you have one of many largest firms on the earth, one of many largest electronics producers or designers on the earth, saying that they wish to ramp up manufacturing that a lot into India. That is an indication that others may comply with? I believe the large threat for India is that if the political scenario adjustments anyway, India’s political scenario, I imply, like politics all around the world may be unstable. You realize, is there any change in in geopolitics between India and nations just like the U.S. and others, which implies U.S. firms are a bit of bit extra standoffish about investing in there? There’s so many causes and dangers to the India story. Do a number of the guarantees and the hype not play out?
Tom Chitty: India have gotten an election this 12 months as properly, which goes to be attention-grabbing to see what occurs there. And I additionally imagined that the connection between China and India, which has by no means been nice, may doubtlessly get a bit of bit extra frosty.
Arjun Kharpal: Yeah, it is fairly dangerous in the intervening time. I imply, on the tech entrance, India’s banned a ton of apps from China. You realize, India has aligned itself barely extra to the nations which might be presently a bit extra anti-China, let’s say? That geopolitics with China may get much more frosty, which, to some extent, advantages. India, if it is attempting to get in additional overseas corporations from locations just like the U.S., for instance. So there’s lots at stake this 12 months. As you stated it is an election 12 months, huge, huge 12 months for India. And you understand, we’ll see who the brand new authorities is and what they’ll prioritize as properly, when it comes to the tech entrance, nevertheless it feels like all authorities that comes into India now has to have tech on the forefront of their thoughts, given I believe how vital know-how may be to a rustic’s financial system, I believe going ahead and all the large adjustments that we’re seeing when it comes to AI, semiconductors, and so forth, and so forth, as properly.
Tom Chitty: Sensible stuff. However earlier than we end, we have now in fact, obtained to do stat of the week.
Arjun Kharpal: 92 folks, Tom.
Tom Chitty: The quantity of individuals it takes to fabricate one microchip.
Arjun Kharpal: Oh, wow, you’re thus far off. It is obtained nothing to do with chips. All it was I noticed this actually attention-grabbing story on cnbc.com. It was one of many high learn tales. And it is the variety of billionaires in Mumbai. And it is the primary time Mumbai has taken the highest spot in Asia for the variety of billionaires within the metropolis. It is overtaken Beijing now, for the primary time, which has 91 billionaires. It is simply behind London on 97 and simply behind New York on 119. I do not know does that talk to India’s progress story indirectly?
Tom Chitty: Properly, the expansion of the pockets.
Arjun Kharpal: The pockets of the ultra-rich. Yeah, however I simply thought was a really attention-grabbing stat. China as a rustic nonetheless has essentially the most variety of billionaires, 814, forward of the U.S. on 800 and a distant third, India, 271. The U.Okay. 146. Germany 140.
Tom Chitty: Simply what our listeners wish to hear about is the extremely rich, getting wealthier.
Arjun Kharpal: Are you not on that checklist? You have to be shut.
Tom Chitty: I am getting there.
Arjun Kharpal: All of the BTV episodes.
Tom Chitty: I imply, all these these episodes, simply cash, simply pouring straight into my pocket. Have you’ve got you not seen any of that motion?
Arjun Kharpal: No. All I’ve obtained is a mug with the branding on it. That was my reward.
Tom Chitty: Okay, that is it for this episode. Earlier than we go, please comply with and subscribe to the present. And you may even charge us. Thanks, Arjun.
Arjun Kharpal: Thanks, Tom.
Tom Chitty: We’ll be again subsequent week for an additional episode of Past the Valley.