Opinion | India Must Hedge China’s Bid To Curb Its Manufacturing Rise
The Indo-US MEGA Partnership could be the way forward, a kind of US-China rapprochement of our times
It has always been a multifaceted relationship with China, with simultaneous contrasting developments.
On the one hand, the Chinese are engaged in successful peace negotiations to remedy the border clash dispute with India. On the other hand, it is denying the export of machinery and engineers to India to delay the inevitable: the shift of many multinationals relocating their manufacturing hubs from China to India.
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On January 10, 2025, reports emerged that China had barred Chinese employees from travelling to Foxconn’s iPhone factories in India, while those already stationed there were being recalled. Additionally, shipments of specialised manufacturing equipment for making iPhones bound for India were halted, with Chinese authorities refusing to approve their export.
The question is: why? To halt Apple’s plans and hinder the development of manufacturing set-ups in India.
What we are witnessing is nothing short of economic warfare, although it may sound extreme. China’s strategy revolves around export denial. This isn’t a trade dispute; it’s a deliberate attempt to stifle India’s growth by restricting access to critical resources and expertise, making it crucial to consider where this may end.
The restrictions on Chinese manpower and equipment exports are designed to hinder Apple’s plan to manufacture the latest iPhone 17 in India and launch it there in 2025, and this is no coincidence. Disrupting the supply chain is a means to pressure Apple to reconsider its gradual transfer of operations away from China, particularly to India.
The chokehold isn’t limited to iPhones. China’s restrictions extend to critical minerals and Tunnel Boring Machines (TBMs). In August 2023, China imposed export restrictions on essential minerals like gallium and germanium, vital for India’s rapidly growing renewable energy sector. These restrictions jeopardise India’s ability to meet its solar power production targets, a malicious attempt to hold India’s renewable energy sector hostage.
In addition, China’s restrictions on German TBMs (Tunnel Boring Machines) are essential for India’s infrastructure projects like metro construction. India is using these machines to create mountain tunnels to facilitate infrastructure creation in the border areas and even facilitate troop movements along the Line of Actual Control (LAC) in times of crisis. The border clashes clearly showed us that crises could occur at any moment. So we have to be ready.
It was clearly in Beijing’s national interest to hamstring India’s infrastructure development and military preparedness simultaneously. Therefore, when Herrenknecht’s, the maker of the TBMs, decided to manufacture TBMs in Chennai, it was a blow that China had not expected because its unofficial export ban fell flat.
However, that was one company; hundreds more want to take a similar route, and India needs to be ready. Chinese actions pose a significant national security threat to India and its economy. China wants to dominate the manufacturing landscape, and export denial is one of its tools to ensure decoupling is delayed. But for how long?
THE DUBAI ROUTE: A TEMPORARY FIX TO A PERMANENT PROBLEM
India has adopted a ‘China Plus One’ strategy, encouraging companies to diversify their production bases. The Indian government is pushing this approach to mitigate the impact of China’s export restrictions. World Bank President Ajay Banga has recommended that India capitalise on this strategy, attracting foreign investment.
The production-linked incentive (PLI) scheme has boosted the smartphone sector, with companies like Apple, Foxconn, Tata Electronics, and Pegatron expanding their local iPhone production. However, most of India’s manufacturing machines and minerals still need to be exported from China.
So, what’s India doing about it? Some Indian importers have found an ingenious workaround: rerouting shipments through Dubai’s Jebel Ali port, effectively outsmarting Beijing’s restrictions. This rerouting strategy has allowed Indian businesses to keep critical projects running, from solar power infrastructure to metro systems. The capital goods are now imported into Dubai, where they are either sold or leased to Indian traders and companies, thus bypassing China’s direct export restrictions.
However, this workaround is not sustainable. What was once a 15-day shipping cycle is now stretching to three months, causing significant delays and adding costs which strain the already tight budgets for strategic infrastructure projects.
MODI AND TRUMP: DECOUPLING AS A SHARED STRATEGY?
Given the situation, the re-emergence of Donald Trump on the global stage presents both opportunities and challenges for India. Trump’s return to power has undoubtedly given India new opportunities in terms of its strategic layout, while posing a considerable external challenge to the slowly recovering China-India ties. How supportive the MAGA (Make America Great Again) leader will be of PM Modi’s ‘Make in India’ initiative remains to be seen. India’s success hinges on its ability to forge strategic alliances and leverage global partnerships. But, if anything can be said about the US-India relationship from Modi’s recent US trip, it’s off to a MEGA start.
Trump made several sweeping promises during his inaugural address, including a vow to tariff and tax foreign countries and deport illegal immigrants. But will this affect India? The Minister of External Affairs of India states that “India is not nervous about Donald Trump’s return as US president". This relationship will need to be fortified. Given Trump’s transactional approach, India must be prepared to offer incentives and concessions to align with his “America First" agenda while securing its own economic interests. This isn’t about blind allegiance; it’s about leveraging a shared interest in reducing reliance on China.
This is a crucial moment for India’s manufacturing sector, which is facing significant challenges, particularly industries reliant on Chinese imports, such as electronics, solar panels, and electric vehicles (EVs). Industry experts claim the Chinese government has halted capital equipment exports, making it harder for companies to expand their manufacturing capacity, increase operational costs, and meet growing demand. It is time to consider a shift in approach.
Why did China halt exports? It employs these tactics for a reason. China wants to prevent the migration of high-tech and consumer electronics industries from China to India, as the latter offers a comparable supply of cheap labour, skilled engineers, and government support. Furthermore, unemployment in China has reached alarming levels, compelling the government to stop publishing official numbers. A solution is needed.
The solution China found is to actively seek to prevent multinational and Chinese companies from relocating to India. This has led to increasingly visible and outright ban impositions against New Delhi. India needs to take action.
WHAT SHOULD INDIA DO?
What options do we have if any?
Firstly, diversification of supply chains is paramount. We can’t be as dependent on China as we are at this moment. With a trade deficit of $83.36 billion, and that’s a billion with a “b", and most of it in critical minerals and manufacturing supplies, we must start looking elsewhere.
Second, we need to boost our domestic manufacturing facilities. The PLI schemes are a good start, but the world is looking towards us, and we do not look ready, especially when our expanding manufacturing sector could be jeopardised with one stroke of a pen in Beijing.
We need to prioritise investment in research and development, encourage domestic innovation, and foster a skilled workforce capable of competing with China on a level playing field. Currently, there are 15 Apple suppliers in India. Forty more are in talks with Apple. The numbers need to increase to 500 for Apple to end importing parts from China entirely.
And third, strategic partnerships, particularly with the United States and other like-minded nations. The Indo-US MEGA Partnership could be the way forward, a kind of US-China rapprochement of our times. A US administration keen on decoupling from China and bent on levelling the playing field looks like our best bet for now.
Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.
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