China Plus One Strategy: A Window of Opportunity

China holds a commanding position in world economy. Its economy has grown immensely since1978, when it launched its "reform and opening-up" strategy. It is now the world's second largest economy by nominal GDP and by purchasing power parity, next only to the United States according to a report "Gauging china's influence" published by the international monetary fund (IMF) in December 2010. Its real gross domestic product has grown by about 10 per cent annually, implying a doubling every seven to eight years.

China's share of world GDP and trade is rising rapidly. It is increasing its linkages with the rest of the world. Its share in world trade has increased nearly tenfold over the past three decades, to about 9 per cent, while its share in world GDP has risen to 13 per cent from less than 3 per cent during the period, according to IMF. Flows of trade and capital between china and the rest of the world are causing growth in other countries. 

Many countries were drawn to invest in china for its cheap labor and strong infrastructure like roads, ports, airports and energy systems. It has also flourished in energy and mineral resources such as coal, iron ore, crude petroleum, natural gas, antimony ore, tin, tungsten, salt, vanadium and molybdenum. China is also gifted with ample potentials for hydroelectric resources because of its river network and mountain terrain.

Lately, however, the pattern of investment in China is undergoing a change, due mainly to hike in wage structure-- approximately 25 per cent a year in major industry sectors. China is also experiencing some worrying inflationary trends right now that are pushing up the prices of everything from a bowl of rice to apartment rentals. Added to that, China unified its corporate income tax system last year, bringing the previous low rates that foreign businesses enjoyed in some cases from 15 to 25 per cent. 

That is why, it has become a matter of concern for the foreign investors to consider finding out another country which can supplement their investment decisions. China plus One or China +1 is an international business strategy that consists of the expansion of one company's current operations in China, say, to a Southeast Asian nation as there is a proverb "don't put your all eggs in a single basket". Many countries are now looking for a country having low wage rate, strong infrastructure and a suitable atmosphere for business. Vietnam in this case is fast coming up to prove itself as a decent destination of realising the need of a second country to invest.

Many countries are now contemplating to exploit the prospects of investing in Vietnam. "A lot of contact manufacturers have moved to Vietnam," said the CEO for the Asia-Pacific region at DB Schenker (subsidiary of Deutsche Bahn AG that focuses on logistics). "The country has moved beyond its early cargo base and increasingly takes care of electronics manufacturing, a trend that has been stoked further by many companies' 'China plus one' strategy,'' he added.

Japan's Yusen Air and Sea Service last year opened an office and a 64,000 sq ft warehouse near Hanoi. Vietnam signed an aviation bilateral with the US which also gives designated airlines the right to carry cargo to and from third countries. FedEx boosted its lift four-fold last year when it upgraded to A310F aircraft to serve Vietnam. It is visible that investment in Vietnam is increasing day by day. In every manufacturing sector foreign investments are rising at great speed.

But the question is why Bangladesh is unable to grip the opportunity. Bangladesh also has the advantage of low wage and abundant manpower. Understandably, the problems for Bangladesh very often pointed out include its deficient infrastructure, unskilled manpower, political instability and last but not the least, volatile capital market. The problems are daunting to find a quick remedy. But in the absence of corrective measures, the situation will further worsen in the days to come. Given the opportunity, it is in the interest of the nation that the policymakers should chalk out a roadmap so that some visible improvements are in place before it is too late.

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