ALEX TRAVELLI
NEW DELHI: To understand India’s trade imbalance with China, look inside Indian factories.
Many of the big machines are Chinese, as are the electronic components and materials feeding them. An electric vehicle plant needs rare-earth magnets from China, while Indian drugmakers rely on Chinese pharmaceutical ingredients.
India has spent years trying to become less dependent on its giant neighbour. Instead, it has been buying more. The total volume of goods exchanged between the two countries has nearly doubled over the past five years, to $151 billion a year. But the trade has become more unbalanced than ever. India now buys roughly seven times as much from China as it sells there.
That surge came even as relations between India and China went into a deep freeze. A bloody hand-tohand skirmish at the Himalayan border in 2020 killed at least 24 soldiers and brought a run of high-level diplomacy to an abrupt halt. On Saturday, Xi Jinping, China’s top leader, set foot in India for the first time in more than six years.
For India, the imbalance creates a difficult problem. Its industrial ambitions depend heavily on Chinese goods, even as that dependence exposes India to strategic risks and makes it harder for its companies to gain the scale needed to compete with Chinese rivals. Now, with the
US-Israeli war with Iran driving up energy costs, Chinese imports are widening India’s global trade deficit and weakening its currency.
India is not alone in struggling with a flood of low-cost Chinese goods. China’s record trade surplus reached nearly $1.2 trillion last year, deepening concerns among trading partners over the growing dominance of Chinese companies across industries.
Those tensions spilled into the open this month at a gathering of economic officials from the Group of 20 nations. US Treasury Secretary Scott Bessent accused China of blocking a joint statement criticising countries “with excessive and persistent external surpluses.”
As India hosted China at the BRICS summit last weekend, analysts expect trade to loom large as a source of tension, alongside the two countries’ disputed border.
Both sides seem to prefer quiet along the border for now. The harder problem may be their economic relationship. For India, keeping Chinese goods out is not an option.
“We will need to engage with them,” said Shekhar Aiyar, director of the Indian Council for Research on International Economic Relations. India should “aggressively invite Chinese firms in — especially in critical sectors like green technology, semiconductors, manufacturing, where China is the world leader,” Aiyar said. In batteries and solar power alone, he estimated, China has a 30% cost advantage over any other exporter.
After the 2020 border clash, India took an aggressive posture toward China. In retaliation, it banned TikTok and dozens of other consumer-facing Chinese apps and restricted Chinese companies’ ability to invest in Indian startups.
At the time, multinational companies were looking to move some supply chains out of China, and India appeared well positioned to benefit. For a brief moment, India looked capable of challenging China’s status as the “factory to the world.” hat did not happen. Vietnam and other Southeast Asian countries captured much of the investment, while China remained at the center of most supply chains.
Santosh Pai, a lawyer in New Delhi who advises Chinese and Indian
companies, said Vietnam had secured large-scale investments as a manufacturing alternative to China — even though it, like India, imports heavily from China for essential equipment and materials. Vietnam’s supply chain, he said, is more integrated with China and the country courts Chinese investment more aggressively.
Pai said India’s efforts to reduce its economic dependence on China had produced mixed results. Even imports ostensibly coming from elsewhere are often Chinese goods processed or repackaged in Southeast Asia.
“The trade measures are well intentioned, but they don’t all work the way we want,” he said. “There is a lot of excess supply in China and a lot of excess demand in India.”