China Plus One Strategy, Meaning, Features, Impact, Challenges

China Plus One Strategy is a business approach where companies diversify their manufacturing and sourcing by expanding into other countries while continuing to operate in China. This reduces risks from overdependence on China, caused by rising labour costs, regulatory uncertainties, pandemic-related disruptions, and geopolitical tensions.

China Plus One Strategy has created new opportunities for countries like India, Vietnam, and Malaysia to attract global investments. India, supported by policy incentives and a skilled workforce, is emerging as an alternative but faces regulatory challenges.

China Plus One Strategy Meaning

China Plus One Strategy is a global business approach where companies are trying to reduce overdependence on China by expanding manufacturing or sourcing in other countries while continuing operations in China. It helps mitigate risks and build resilient supply chains.

• Origin: Coined around 2013, the strategy arose when companies that had long depended on China’s low labour costs, infrastructure, and large market began facing new challenges, prompting the need to diversify.
• Driving Factors: The strategy is mainly driven by factors like global supply chain disruptions, rising labour costs, economic slowdowns, unclear regulations, strict pandemic controls (like zero-COVID policies), and escalating geopolitical conflicts. 
• Key Beneficiaries: Countries like India, Vietnam, and Malaysia have gained significantly by attracting investments, offering competitive manufacturing options, and strengthening supply chains.

China Plus One Strategy Factors for Emergence

China Plus One Strategy emerged as companies sought to reduce risks from overdependence on China. The strategy encourages companies to diversify production outside China due to various factors.

• China’s Internal Economic Problems: Weakening domestic demand (especially after prolonged COVID-19 restrictions), rising wages, and persistent overcapacity have eroded parts of China’s manufacturing competitiveness, particularly in labor-intensive sectors, while global demand shifts added pressure.
• Unclear Rules and Policies: Frequent regulatory changes, lack of transparency, and uneven enforcement created operational uncertainty, making other jurisdictions with stable policy environments more attractive.
• COVID-19 Lockdown Disruptions: The strict zero-COVID policy caused prolonged factory shutdowns, supply shortages, and logistical delays, showing companies the risks of relying solely on China.
  • Shanghai’s strict zero-COVID restrictions in 2022, coupled with intense lockdowns, severely disrupted factories and logistics and caused sizeable port delays.
• Geopolitical Tensions: Disputes in the South China Sea and Taiwan Strait, along with the US–China trade war, increased the risk of sanctions and trade barriers, encouraging diversification.
• Rising Production Costs: Higher wages, compliance costs, and other operational expenses have eroded China’s low-cost advantage, prompting firms to shift part of their production to more cost-efficient locations.

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China Plus One Strategy Features

China Plus One strategy encourages companies to maintain operations in China while setting up production in other countries. The strategy lowers reliance on a single hub, reduces disruption risks, optimises costs, and strengthens supply chains for strategic global trade and competitiveness.

• Diversification of Manufacturing: Companies retain their Chinese operations but gradually expand production to other countries. This ensures a more balanced and secure manufacturing footprint, reducing over-reliance on one location.
• Risk Mitigation: By operating in multiple countries, firms reduce exposure to political tensions, regulatory changes, or logistical bottlenecks in China that could disrupt production.
• Geographical Spread: Alternative manufacturing sites such as India, Vietnam, Thailand, Bangladesh, and Malaysia provide strategic flexibility and easier access to regional and global markets.
• Supply Chain Resilience: Distributing production across several countries ensures continuity of operations, even if one location faces disruptions due to natural, political, or logistical challenges.
• Cost Optimisation: Companies can leverage China’s advanced industrial base while benefiting from lower production costs in emerging economies, achieving a balanced and efficient cost structure.
• Long-Term Strategic Planning: Establishing production in multiple countries allows firms to align manufacturing and investment with anticipated trade policies, market access, and tariff considerations, enhancing their global competitiveness over time.

China Plus One Strategy Opportunities for India

China Plus One strategy gives India a chance to attract global investment and boost manufacturing. With the right incentives and workforce, India can expand exports and strengthen its role in global supply chains.

• Boost to Electronics & IT Manufacturing: India’s manufacturing is benefiting as companies diversify supply chains. Government initiatives like Make in India and the Production-Linked Incentive (PLI) scheme attract foreign investment and support electronics, textiles, auto components, and IT hardware production.
  • Example: Companies such as Apple and Samsung are expanding production in India.
• Strengthening Supply Chain Resilience: Diversifying production to India reduces global dependence on China, creating more resilient supply chains. The country’s stable policies, skilled workforce, and infrastructure improvements make it a reliable alternative for critical sectors.
• Growth of Export-Oriented Industries: Rising global demand is boosting India’s export sectors, including pharmaceuticals, textiles, chemicals, and agro-processed goods.
  • Example: As the world’s third-largest pharmaceutical producer by volume, India supplies around 65–70% of the WHO’s vaccine supply needs.
• FDI Attraction and Employment Generation: China Plus One has driven large-scale investment and job creation. In FY 2024–25, manufacturing Foreign direct investment (FDI) grew 18% reaching USD 19.04 billion compared to USD 16.12 billion in FY 2023–24.
• Geopolitical & Strategic Leverage: India’s emergence as a preferred hub enhances trade negotiation power and global economic influence. This shift also adds a new dimension to India–China relations, as global supply chain diversification reduces dependence on China and strengthens India’s bargaining position.
  • Partnerships like QUAD, I2U2, CEPA with the UAE, and leadership in the G20, facilitate technology transfer, investment, and market access.

India’s Limited Success in China Plus One Strategy

China-Plus-One strategy progress in India has been limited due to competition from other countries, complex regulations, and fewer trade agreements. Infrastructure gaps and compliance challenges have further constrained India’s ability to fully benefit from this strategy.

• Strong Competition from Other Countries:  India faces tough competition because countries like Vietnam and Malaysia offer lower wages, simpler tax rules, and faster approvals, making them more attractive to multinational companies.
• Complex Regulations and Administrative Delays: India’s regulatory system involves multiple clearances, slow approvals, and frequent policy changes, creating uncertainty for investors and raising the time and cost of doing business.
• Limited Trade Agreements: In comparison to India, Southeast Asian nations have signed more FTAs that help them export more easily and cheaply. India has significant room to further tap its potential in world markets.
• Environmental Compliance Challenges: New rules like the EU’s Carbon Border Adjustment Mechanism could make Indian exports, especially steel, more expensive, reducing their appeal in overseas markets.
• Land Acquisition and Tax Complexities: Land acquisition for industries is often slow and disputed. India’s tax system, though reformed, is still seen as complex.

China Plus One Strategy Future

China-Plus-One strategy offers India an opportunity to become a major alternative manufacturing hub. By enhancing workforce skills and building trade partnerships, India can attract investment, diversify supply chains, and strengthen its role in global markets.

• Targeted Incentives: India should provide enhanced tax benefits and expand Production Linked Incentive (PLI) schemes for electronics, automotive, pharmaceuticals, and steel to attract investment and create jobs.
• Ease of Doing Business: Streamlining regulations, labour laws, land acquisition, and environmental clearances, along with faster approvals, will accelerate factory setup and reduce operational hurdles.
• Industrial Clusters & SEZs: Developing sector-specific clusters and Special Economic Zones (SEZs) with ready-to-use facilities, logistics support, and reliable utilities will lower costs and strengthen supply chain efficiency.
• Skill Development: Focused upskilling programs and vocational training aligned with industry needs will ensure a competent workforce for both high-tech and labour-intensive sectors.

Trade Facilitation & Strategic Partnerships: India should strengthen Free Trade Agreements and global partnerships via QUAD, I2U2, and CEPA (UAE) to expand market access, diversify exports, and encourage technology transfer.