Submission Statement: After decades of betting big on China, Japanese chemical giants like Mitsui Chemicals and Sumitomo Chemical are quietly changing their playbook. The shift is understated but undeniable: factories that once seemed permanent Japanese addresses in China are being sold off, while long-term expansion plans are quietly placed on the shelf.
Instead of China, Japanese executives are redirecting their attention to another economic giant: India. What began as the concept of China Plus One diversification some years ago has become a full-scale strategic pivot, driven by a confluence of geopolitical tensions, economic uncertainty, and compelling opportunities in industries like semiconductor materials and composite materials where Japanese firms are market leaders.
In recent years, though, India’s growing economy and middle class “has created the possibility that it could become the ‘One’ in China Plus One,” says Mikiya Yamada, a stock analyst at Mizuho Securities. “With China’s economic outlook increasingly uncertain, companies are not in a position to expand investment.”
In 2022, the Japanese government announced a five-year, ¥5 trillion ($33 billion) public and private investment package for India. The objective was reached in just 3 years. Building on this momentum, Japan has set a new target of twice as much, or $66 billion in private-sector investment over the next decade.
The case for India is compelling. “New investment that once would have gone to China will be increasingly directed to India,” notes Masashi Kono, Research and Analysis Department director at Jetro. “India is gaining attention both as a risk hedge and as a high-growth market.”
Chemical manufacturers are especially encouraged by the growth of the upper-middle-income class, which in India means annual income in the $15,000–$35,000 range. This segment grew from 3.2% of the population in 2010 to 8.6% in 2020 and is projected to reach 29.0% of the population in 2030 and 41.9% in 2040, according to Jetro. By then, 70% of households will earn over $15,000. More-affluent customers usually buy products made with better-quality raw materials.
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