Business

Builder sentiment dropped 6 points to 50 in August, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Anything over 50 is considered positive.
Mortgage rates are now holding solidly over 7%, hitting 7.24% on Monday, according to Mortgage News Daily.
The share of builders cutting prices rose to 25% in August from 22% in July.

Residential home construction by Shea Homes builders is shown in Encinitas, California, May 16, 2023.
Mike Blake | Reuters

Rising mortgage rates are hitting potential homebuyers hard, and that is taking steam out of the homebuilding market.
Builder sentiment in the market for newly built homes dropped 6 points to 50 in August, according to the National Association of Home Builders/Wells Fargo Housing Market Index. That is the first decline in seven months and the lowest level since May, when sentiment first rose out of negative territory. Anything over 50 is considered positive.

“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said Alicia Huey, NAHB chair and a homebuilder and developer from Birmingham, Alabama.
Mortgage rates are now holding solidly over 7%, hitting 7.24% on Monday, according to Mortgage News Daily. The average rate on the 30-year fixed loan rose over 7% in the last week of July.
Of the index’s three components, current sales conditions fell 5 points to 57, and sales expectations in the next six months fell 4 points to 55. Buyer traffic dropped 6 points to 34.
“Declining customer traffic is a reminder of the larger challenge that shelter inflation is up 7.7% from a year ago and accounted for a striking 90% of the July Consumer Price Index reading of 3.2%,” said Robert Dietz, NAHB’s chief economist, who added that the market currently has a shortfall nationwide of about 1.5 million housing units.
Higher mortgage rates and the decline in buyer activity have more builders using sales incentives once again. They had done that in the second half of last year, when interest rates first moved higher. They then pulled back this spring, when demand surged.

Now, after dropping for four straight months, the share of builders cutting prices rose to 25% in August from 22% in July. The average price cut, however, remained at 6%. The share of builders using all types of incentives, including buying down interest rates, rose to 55% in August from 52% in July. But it was still lower than the 62% share at the end of last year.
Regionally, on a three-month moving average, builder sentiment in the Northeast rose 4 points to 56. In the Midwest and South, sentiment was unchanged at 45 and 58, respectively. In the West, where housing is most expensive, sentiment fell 1 point to 50. More

Chick-fil-A customers can buy the chain’s new Honey Pepper Pimento Chicken Sandwich in restaurants nationwide, starting Aug. 28.
Unlike many other fast-food chains, Chick-fil-A has focused on keeping its menu short and simple, making its kitchens and drive-thru lanes more efficient.
The Honey Pepper Pimento Chicken Sandwich was a project five years in the making.

Chick-fil-A’s Honey Pepper Pimento Chicken Sandwich.
Source: Chick-fil-A

Chick-fil-A is adding a new spin on its iconic chicken sandwich to menus for a limited time.
Starting Aug. 28, customers can buy the Honey Pepper Pimento Chicken Sandwich at the chicken chain’s restaurants nationwide, while supplies last.

The new item uses the same breaded chicken filet as a typical Chick-fil-A sandwich but features a spread of pimento cheese and drizzle of honey on top. Pickled jalapenos replace the pickles usually used in the sandwich.
Chick-fil-A has released seasonal menu items, such as milkshake flavors, for more than a decade. But the limited release of the Honey Pepper Pimento Chicken Sandwich shows how the chain is shifting its menu strategy as it expands nationwide. Unlike many other fast-food chains, Chick-fil-A has tried to keep its menu short and simple, making its kitchens and drive-thru lanes more efficient.
Even without an extensive menu, Chick-fil-A has grown to be the No. 3 restaurant chain by sales in the U.S., trailing only Starbucks and McDonald’s. Chick-fil-A’s revenue rose 11% to $6.37 billion in 2022, according to franchise disclosure documents. Founder S. Truett Cathy’s family still owns the Atlanta-based company.
The Honey Pepper Pimento Chicken Sandwich was a project five years in the making, according to Stuart Tracy, Chick-fil-A’s principal culinary lead. Chick-fil-A tasked Tracy with creating a spin on its chicken sandwich, and his team came up with nearly 30 different flavor options after more than a year. The chain tested the Honey Pepper Pimento Chicken Sandwich in 2020 in Asheville, North Carolina, and upstate South Carolina.
Tracy didn’t rule out Chick-fil-A permanently adding the menu item. After supply runs out, the chain will assess responses from customers and franchisees to decide if it’s worth bringing back.
Chick-fil-A is also adding a new seasonal milkshake to its fall menu: the Caramel Crumble Milkshake. The milkshake includes butterscotch caramel flavors and blondie crumbles. The chain tested the menu item in Salt Lake City in 2021. More

For more than 200 years Luddites have received bad press—worse even than the British Members of Parliament who voted in 1812 to put to death convicted machine-breakers. Yet even at the time, the aggrieved weavers won popular sympathy, including that of Lord Byron. In an “Ode to Framers of the Frame Bill” the poet wrote: “Some folks for certain have thought it was shocking/ When Famine appeals, and when Poverty groans/ That life should be valued at less than a stocking/ And breaking of frames lead to breaking of bones.” He used his maiden speech in the House of Lords to urge for a mixture of “conciliation and firmness” in dealing with the mob, rather than lopping off its “superfluous heads.” Once again, technological upheaval is rife and there is a widespread feeling, even among the patrician classes, that the old ways are in danger of being trampled under foot by the march of progress. In America two big labour disputes—one looming, the other well under way—are, among other things, grappling with potentially seismic transformations caused by decarbonisation and artificial intelligence (AI).The United Auto Workers (UAW) union, representing employees of Ford, General Motors and Stellantis (maker of Chrysler and Fiat), is threatening a strike when labour contracts end on September 14th. As well as fighting for sharply higher pay, one of its goals is to extend wages and other benefits offered in conventional car manufacturing to people working on electric vehicles (EVs), the production of which typically uses more robots and fewer blue-collar workers. Over in Hollywood, writers and actors are at an impasse with studios over pay and conditions in the streaming era, a dispute that has been muddied by the vexing question of how AI will reshape the industry if new tools can be used to write scripts or simulate actors. Such struggles may well shape how workers in other industries view the impact of technological change on their jobs.A new generation of union leaders has come out swinging. Shawn Fain is the first president of the UAW in 70 years to emerge from outside the union’s ruling clique. He was elected in March by the rank and file, after a years’-long corruption scandal led to a change in the union’s voting procedures. From the start, Mr Fain has cast himself as a firebrand. He publicly threw a bargaining proposal from Stellantis into the bin. (The biggest shareholder in the firm, Exor, part-owns The Economist’s parent company.) Meanwhile, the Writers Guild of America and SAG-AFTRA, which represents actors, have gone on strike simultaneously for the first time in more than 60 years. Fran Drescher, leader of the actors’ guild (and star of “The Nanny”, a 1990s sitcom) has made clear that the showdown is part of a wider struggle. “The eyes of labour are upon us,” she said in a thundering speech announcing the strike.The fights are taking place in an unusually supportive environment for unions. Late last month more than half of the Senate’s Democrats signed a letter to the “Big Three” carmakers arguing that workers at their battery plants should be eligible for the same deal offered to other UAW members. President Joe Biden, who equates “good” jobs with union jobs, has just reinstated a rule shelved during the Reagan administration that will, in effect, boost wages for construction workers on government-backed projects. Nationwide, support for unions is at 71%, its highest level since the mid-1960s, according to Gallup, a pollster. Both in Detroit and in Hollywood, unions are tapping into popular disquiet over ballooning pay for CEOs. Even the Republicans, though vehemently anti-union, are trying to rebrand their relationship with workers. American Compass, a conservative think-tank, calls for the creation of worker-management committees, similar to Europe’s “work councils”, which give employees a voice in how a business is run.Some academics contend that workers are right to be wary of technological change. “Power and Progress”, a newish book by Daron Acemoglu and Simon Johnson, both of the Massachusetts Institute of Technology, wades through a thousand years of history to argue that new technologies lead to better livelihoods only when they create jobs, rather than just cost savings, and when countervailing forces, such as unions, shape their effect. It berates techno-optimism, and at times sounds like a Luddites’ manifesto. Speaking to your columnist, Mr Johnson expresses optimism that the UAW and the Big Three can find a way to ensure the switch to EVs does not lead to widespread job losses. He points to the eventual embrace by unions of the containerisation of shipping, which saved countless hours of labour at ports but also led to a surge in the amount of cargo that passed through them, preserving jobs and benefits for dockers. In theory, as EV production scales up, prices will come down and more drivers will buy them. If they put their feet on the gas the Big Three may even be able to reverse the decline in America’s car exports, fuelling demand for even more workers. The massive subsidies handed out by the Biden administration to promote EV production afford the industry a rare opportunity to regain the initiative.Bish, bash, botBy contrast, Mr Johnson’s prognosis for writers and actors in the age of AI is darker, likening their plight to that of the weavers-cum-Luddites whose jobs were rendered unnecessary by machines. That view helps explain why they are seeking to pre-emptively curtail studios’ use of AI. Yet the technology’s impact on Tinseltown need not be zero-sum. By speeding up the writing process, for instance, AI could lower costs and allow more content to be created.What’s more, the gales of creative destruction can be held back only for so long. For unions to secure their members’ livelihoods they need to work with technological change, rather than against it. That means using a Byronesque combination of conciliation and firmness to ensure that it is used to grow the pie for everyone, rather than double down on anti-corporate rage. If not they may end up, like the Luddites, on the wrong side of history. ■ More

Home Depot beat quarterly earnings and revenue estimates.
Yet the company reiterated its full-year guidance after it lowered the outlook last quarter.
CFO Richard McPhail said consumers are still holding back on big-ticket discretionary purchases.

A sign is seen posted on the exterior of a Home Depot store on February 21, 2023 in El Cerrito, California. 
Justin Sullivan | Getty Images

Home Depot topped earnings expectations on Tuesday, but posted a 2% year-over-year sales decline as customers remained wary of big purchases and major projects.
It marked the first time in three quarters that the company beat Wall Street’s revenue expectations.

Yet the Atlanta-based home improvement retailer reiterated its muted forecast for the fiscal year despite the beat, saying it still expects sales and comparable sales to decline between 2% and 5% compared with the year-ago period. It had lowered the forecast last quarter.
In an interview on Tuesday, Chief Financial Officer Richard McPhail said the company has seen “continued caution on the part of consumers when it comes to larger ticket, more discretionary spending.” He said in some cases, homeowners already made those bigger purchases during the pandemic. In other instances, they are likely deferring them because of higher interest rates.
McPhail said key pandemic dynamics are reversing, too. Transportation costs have dropped. Vendors aren’t coming to Home Depot with as many requests for price increases. He added that supply-chain disruption is “largely behind us.”
“We don’t expect to see meaningful inflation in the second half of the year,” McPhail said.
Here’s what the retailer reported for the three-month period that ended July 30 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

Earnings per share: $4.65 vs. $4.45 expected
Revenue: $42.92 billion vs. $42.23 billion expected

The company reported fiscal second-quarter net income of $4.66 billion, or $4.65 per share, down from $5.17 billion, or $5.05 per share, a year earlier. Revenue fell year-over-year from $43.79 billion.
The retailer’s shares were down nearly 1% premarket trading.

Arrows pointing outwards

Home Depot faces a more challenging sales backdrop, as demand for do-it-yourself projects and contractors normalizes after nearly three years of unusually high demand. McPhail, the company’s CFO, told investors earlier this year that 2023 would mark a year of moderation, as customers returned to more typical pre-pandemic patterns.
On top of that, the retailer faces a weakening housing market, inflation and consumers’ shift to spending more on services instead of goods.
But McPhail said Tuesday that Home Depot’s typical customers are in good financial shape, thanks in part to sharp home equity gains during Covid. They are still hiring contractors, but for more small projects.
“Generally speaking, the homeowner customer — who is really our customer — remains healthy and remains engaged in home improvement,” he said.
Cooling inflation has also shown up in Home Depot’s sales trends. McPhail said the company has not seen deflation, but is now in a period of “price settling.” Home Depot has lowered retail prices in some cases, he said. The reductions are not concentrated in any particular category.
Home Depot noticed that as the company’s ticket, or typical amount spent by a customer, decreased, its number of shopper transactions began to rise, he said.

Comparable sales in the U.S. and company-wide declined by 2% in the fiscal second quarter, but that exceeded expectations for a 3.9% decline, according to FactSet. It marked the third straight quarter of falling comparable U.S. sales.
Total customer transactions fell by about 2% compared with the year-ago period, but the average ticket was roughly flat at $90.07.
On an earnings call, CEO Ted Decker said sales to home professionals were stronger than sales to do-it-yourself customers, but both were negative compared to the year-ago period. He said the backlog of jobs for pros has dropped since a year ago, but is still higher than historic levels.
Home Depot said in its earnings release that the company’s board of directors approved $15 billion in share buybacks, which will take effect Tuesday.
As of Monday’s close, Home Depot’s shares are up 4% so far this year. That’s trailed behind the nearly 17% gain of the S&P 500. Shares closed at $329.95 on Monday, down less than 1%.  More

Beloved Gen Z underwear brand Parade has agreed to be bought by Ariela & Associates International, an intimates manufacturer and licensee of Fruit of the Loom.
Parade was last valued at $200 million in August 2022. The price of the deal was not disclosed.
Digitally native, direct-to-consumer retailers that haven’t reached profitability have struggled against a tough funding environment and some are eyeing an exit.

Parade underwear
Source: Parade

Privately owned Ariela & Associates International has agreed to buy Parade, the VC-backed intimates startup that created “the internet’s favorite underwear,” CNBC has learned. 
The deal brings Parade’s relevance, digital savviness and loyal customer base to Ariela, a Fruit of the Loom licensee that’s been a longtime player and manufacturer in the intimates space. In turn, it offers the startup its infrastructure, know-how and the ability to scale as some digitally-native companies look for an exit amid a tough funding environment.

“[It] does fit with the whole ‘DTC winter’ thing. As interest rates rose, VC money for a lot of startups dried up,” Nikki Baird, a longtime retail analyst and current vice president of strategy at retail technology company Aptos, said about the deal. “Consolidation is the big opportunity, especially for big, traditional brands to acquire more digitally savvy upstarts. This fits right into that pattern.” 
Parade was last valued at $200 million in August 2022. The price of the deal and Parade’s current valuation wasn’t disclosed. The Information first reported that Parade was exploring a sale. 
“Parade’s commitment to inclusive fast fashion which doesn’t compromise on its sustainable mission aligns seamlessly with our core principles and we believe that this union will allow us to create powerful synergies,” Ariela Esquenazi, Ariela & Associate’s CEO, said in a statement.
Parade didn’t immediately comment.
Founded in 2019 by Columbia University dropout Cami Téllez, Parade has been on a mission to disrupt the intimates category and be the opposite of Victoria’s Secret by focusing on inclusivity, body positivity and sustainable manufacturing. 

The rise of Parade is part of an ongoing trend in the intimates space, which has been evolving over the last decade to focus more on sizing and comfortability and move away from a sole focus on sexiness. The category is valued at $13 billion in the U.S. and is growing. Globally, it’s valued at $45 billion.
Soon after it launched, Parade won big online through its use of micro-influencers. It quickly became a favorite among Gen Z consumers eager for comfortable and affordable underwear that fit their body style and personal values. 
However, scaling a direct-to-consumer business and charting a path to profitability amid high interest rates and rising customer acquisition costs has become increasingly difficult for retailers, which is leading to more consolidation. While some digitally native retailers have managed to achieve profitability and go public and others will continue to do so, some have opted for strategic acquisition to help them get to the next level.
In July, FullBeauty Brands announced its acquisition of CUUP, a digitally native intimates company that focuses on size inclusivity, just three months after it announced its acquisition of ELOQUII, a plus-size apparel brand, from Walmart. 
Earlier this year, Parade went beyond its direct-to-consumer roots and rolled out a series of products with Target in a bid to acquire more customers and meet consumers off of its website. As part of Ariela, Parade will now be able to tap on the firm’s manufacturing muscle to scale up and become more of a mass-market brand, said Jessica Ramirez, a senior analyst with Jane Hali and Associates. 
It’ll also be able to lean on Ariela’s supply chain, product design and development prowess, as well as its gmdistribution abilities both on the wholesale level and digitally, said a person familiar with the matter.
Ariela sells more than 60 million garments a year. It already owns Curvy Couture, which it acquired in 2019, and Smart & Sexy. It has also held the master license to Fruit of the Loom’s bras for more than 20 years.
“They have the design, they have the sourcing, so they seem to have it all under one umbrella and they are intimate specialists,” said Ramirez. “From the brands that have kind of come through the disrupter stage, there’s other ones that have grown more. I think Parade hasn’t as much … this would make sense to propel it on a larger level.” More

President Joe Biden is calling for a “fair agreement” between the United Auto Workers and Detroit automakers that avoids “painful” plant closures.
Biden’s statement comes a month ahead of current four-year national deals between the UAW and General Motors, Ford Motor and Stellantis expiring at 11:59 p.m. ET Sept. 14.
UAW President Shawn Fain has been withholding a reelection endorsement for Biden until the union’s concerns about the auto industry’s transition to all-electric vehicles are addressed.

Speaking in front of a backdrop of American-made vehicles and a UAW sign, President Joe Biden, then a presidential candidate, speaks about new proposals to protect U.S. jobs during a campaign stop in Warren, Michigan, Sept. 9, 2020.
Leah Millis | Reuters

DETROIT – President Joe Biden is calling for a “fair agreement” between the United Auto Workers and Detroit automakers that avoids “painful” plant closures, as the sides engage in contentious contract negotiations for roughly 150,000 unionized U.S. auto workers.
Biden – touted as the “most pro-union president” – said Monday that the negotiations provide a “win-win opportunity” for all sides, while calling for a “fair transition to a clean energy future.” He also hailed the union’s role in creating the American middle class, which he said these new contracts should sustain.

“As the Big Three auto companies and the United Auto Workers come together — one month before the expiration of their contract — to negotiate a new agreement, I want to be clear about where I stand. I’m asking all sides to work together to forge a fair agreement,” Biden said in a statement released by the White House.
Biden’s statement comes a month ahead of current four-year deals between the UAW and General Motors, Ford Motor and Stellantis expiring at 11:59 p.m. ET Sept. 14. It also comes months after UAW President Shawn Fain said the union was withholding a reelection endorsement for Biden until the union’s concerns about the auto industry’s transition to all-electric vehicles are addressed.
Biden also said the sides should “take every possible step to avoid painful plant closings,” which may be easier said than done, as the union pushes for hefty pay increases and Stellantis has already indefinitely idled an Illinois assembly plant earlier this year.
The UAW considered Biden’s statement a win, as union leaders such as Fain have been calling for a “just transition” to all-electric vehicles, which threaten UAW jobs.
“At this critical moment in negotiations, we appreciate President Biden’s support for strong contracts that ensure good paying union jobs now and pave the way for a just transition to an EV future,” Fain said in a statement.

EVs can be built with less manual labor. There also are major concerns regarding how the pay, benefits and organizing of joint venture battery plants between the automakers and battery suppliers will impact the union and its members.
GM, Ford and Stellantis said in statements they continue to bargain in good faith with the union for contracts that benefit the workers and assist in the competitiveness of the companies.
“We agree it is critical for all sides to work together on a fair labor contract – a contract that provides job security and supports good wages and benefits for our team members while enabling companies to compete successfully domestically and globally,” GM said. More

Nikola is recalling all 209 of the battery-electric semitrucks it has made to date to repair a potential flaw in their battery packs.
A fire that started in a truck’s battery pack destroyed five Nikola trucks at the company’s headquarters in June.
The recall doesn’t affect Nikola’s new fuel-cell-powered semitruck.

A battery-electric Nikola Tre semitruck. Nikola is recalling all of the battery-electric Tres to repair a flaw in their battery packs that could start a fire. Five battery-electric Tres were destroyed in a fire at Nikola’s headquarters in June 2023.
Courtesy: Nikola

Shares of electric truck maker Nikola opened sharply lower Monday after the company announced a recall of all the battery-electric semitrucks it has made to date — 209 in total — after an investigation into a recent fire found a flaw.
Shares fell more than 6% Monday to $1.82 each.

The recalls do not affect Nikola’s latest model, a semitruck powered by a hydrogen fuel cell. Production of the fuel cell trucks began last month.
Nikola said late Friday that a third-party investigation found that a coolant leak inside a battery pack was likely responsible for a fire in a truck parked at the company’s Phoenix headquarters on June 23. That fire spread to other nearby trucks, destroying five.
Nikola had originally suspected that the trucks were deliberately set on fire in an act of vandalism. It now believes that “foul play or other external factors were unlikely to have caused the incident,” it said in its Friday night statement.
A second truck used by the company’s engineering team had a similar battery-pack malfunction on Aug. 10, though the problem was caught before it became a major fire, Nikola said.
Following the third-party report, Nikola’s own engineers determined that a component in the battery pack, manufactured by an outside supplier, is the likely culprit. It expects to have a repair available soon.

The company is halting sales of its battery-electric trucks until the repair is available.
Nikola is remotely monitoring all of its battery-electric trucks for signs of a similar defect. Although the company said it believes the risk is low — only two battery packs out of over 3,100 made have had the problem, it noted — it advised operators that while they can continue to use the trucks, the trucks should be parked outside until the repair is made. More

CHINA AND India are not on the friendliest of terms. In 2020 their soldiers clashed along their disputed border in the deadliest confrontation between the two since 1967—then clashed again in 2021 and 2022. That has made trade between the Asian giants a tense affair. Tense but, especially for India, still indispensable. Indian consumers rely on cheap Chinese goods, and Indian companies rely on cheap Chinese inputs, particularly in industries of the future. Whereas India sells China the products of the old economy—crustaceans, cotton, granite, diamonds, petrol—China sends India memory chips, integrated circuits and pharmaceutical ingredients. As a result, trade is becoming ever more lopsided. Of the $117bn in goods that flowed between the two countries in 2022, 87% came from China (see chart). India’s prime minister, Narendra Modi, wants to reduce this Sino-dependence. One reason is strategic—relying on a mercurial adversary for critical imports carries risks. Another is commercial—Mr Modi is trying to replicate China’s nationalistic, export-oriented growth model, which means seizing some business from China. In recent months his government’s efforts to decouple parts of the Indian economy from its larger neighbour’s have intensified. On August 3rd India announced new licensing restrictions for imported laptops and personal computers—devices that come primarily from China. A week later it was reported that similar measures were being considered for cameras and printers.Officially, India is open to Chinese business, as long as this conforms with Indian laws. In practice, India’s government uses a number of tools to make Chinese firms’ life in India difficult or impossible. The bluntest of these is outright prohibitions on Chinese products, often on grounds related to national security. In the aftermath of the border hostilities in 2020, for example, the government banned 118 Chinese apps, including TikTok (a short-video sensation), WeChat (a super-app), Shein (a fast-fashion retailer) and just about any other service that captured data about Indian users. Hundreds more apps were banned for similar reasons throughout 2022 and this year. Makers of telecoms gear, such as Huawei and ZTE, have received the same treatment, out of fear that their hardware could let Chinese spooks eavesdrop on Indian citizens.Tariffs are another popular tactic. In 2018, in an effort to reverse the demise of Indian mobile-phone assembly at the hands of Chinese rivals, the government imposed a 20% levy on imported devices. In 2020 it tripled tariffs on toy imports, most of which come from China, to 60% then, at the start of this year, raised them to 70%. India’s toy imports have since declined by three-quarters.Sometimes the Indian government eschews official actions such as bans and tariffs in favour of more subtle ones. A common tactic is to introduce bureaucratic friction. India’s red tape makes it easy for officials to find fault with disfavoured businesses. Non-compliance with tax rules, so impenetrable that it is almost impossible to abide by them all, are a favourite accusation. Two smartphone makers, Xiaomi and BBK Electronics (which owns three popular brands, Oppo/OnePlus, Realme and Vivo), are under investigation for allegedly shortchanging the Indian taxman a combined $1.1bn. On August 2nd news outlets cited anonymous government officials saying that the Indian arm of BYD, a Chinese carmaker, was under investigation over allegations that it paid $9m less than it owed in tariffs for parts imported from abroad. MG Motor, a subsidiary of SAIC, another Chinese car firm, faces investment restrictions and a tax probe. A convoluted licensing regime gives Indian authorities more ways to stymie Chinese business. In April 2020 India declared that investments from countries sharing a border with it must receive special approvals. No specific neighbour was named but the target was clearly China. Since then India has approved less than a quarter of the 435 applications for foreign direct investment from the country. According to Business Today, a local outlet, only three received the thumbs-up in India’s last fiscal year, which ended in March. Last month reports surfaced that a proposed joint venture between BYD and Megha Engineering, an Indian industrial firm, to build electric vehicles and batteries failed to win approval over security reasons. Luxshare, a big Chinese manufacturer of devices for, among others, Apple, has yet to open a factory in Tamil Nadu, despite signing an agreement with the state in 2021. The reason for the delay is believed to be an unspoken blanket ban from the central government in Delhi on new facilities owned by Chinese companies. In early August the often slow-moving Indian parliament whisked through a new law easing the approval process for new lithium mines after a potentially large deposit of the metal, used in batteries, was unearthed earlier this year. Miners are welcome to submit applications, but Chinese bidders are expected to be viewed unfavourably.In parallel to its blocking efforts, India is using policy to dislodge China as a leader in various markets. India’s $33bn programme of “production-linked incentives” (cash payments tied to sales, investment and output) has identified 14 areas of interest, many of which are currently dominated by Chinese companies. One example is pharmaceutical ingredients, which Indian drugmakers have for years mostly procured from China. In February the Indian government started doling out handouts worth $2bn over six years to companies that agree to manufacture 41 of these substances domestically. Big pharmaceutical firms such as Aurobindo, Biocon, Dr Reddy’s and Strides are participating. Another is electronics. Contract manufacturers of Apple’s iPhones, such as Foxconn and Pegatron of Taiwan and Tata, an Indian conglomerate, are allowed to purchase Chinese-made components for assembly in India provided they make efforts to nurture local suppliers, too. A similar arrangement has apparently been offered to Tesla, which is looking for new locations to make its electric cars.Some Chinese firms, tired of jumping through all these hoops, are calling it quits. In July 2022, after two years of efforts that included a promise to invest $1bn in India, Great Wall Motors closed its Indian carmaking operation, unable to secure local approvals. Others are trying to adapt. Xiaomi has said it will localise all its production and expand exports from India which, so far, go only to neighbouring countries, to Western markets. Shein will re-enter the Indian market through a joint venture with Reliance, India’s most valuable listed company, renowned for its ability to navigate Indian bureaucracy and politics. ZTE is reportedly attempting to arrange a licensing deal with a domestic manufacturer to make its networking equipment. So far it has found no takers. Given India’s growing suspicions of China, it may be a while before it does. ■ More