The dragon is tightening its hold: Can India defy it?

Economic Times

8 hours ago

Why is China waging a low-intensity war on Indian manufacturing?
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In recent months, geopolitical undercurrents have intensified between Asia's two largest economies, India and China. While the military standoff in Ladakh's Galwan Valley in 2020 marked a turning point in bilateral relations, a quieter but far more consequential confrontation is now unfolding. China is trying to undermine India's manufacturing ascent through strategic export denials, regulatory pressure and skilled labour restrictions. Several steps taken by China in the past few months indicate a well-formed strategy to hobble India's rise as a manufacturing power just when many factors align to help that.Given India's dependence on Chinese imports in several sectors, China can seriously hamper India's dream of becoming a rival manufacturing power. But in the long run, its obstructive measures will only help India gain self-reliance.China's economic strategy appears to be increasingly shaped by the need to maintain its dominance as the world's factory, especially as global manufacturers pursue the 'China Plus One' strategy to diversify supply chains. India, with its vast labour force, growing infrastructure and government-backed industrial policies, is emerging as a prime alternative. This transition poses a direct threat to China's central role in global manufacturing.Beijing's recent actions suggest it is deploying several tools to delay or derail India's industrial ambitions. Bloomberg reported on Wednesday that over 300 Chinese engineers employed by Foxconn in India have been recalled to China, reportedly due to regulatory pressure from Beijing. These engineers were supposed to be critical to the upskilling of Indian teams at Foxconn's iPhone assembly lines, a process essential to ramp up production of future models like the iPhone 17.Moreover, China has either halted or significantly delayed exports of key materials to India, including rare earth magnets (vital for manufacturing electric vehicles), specialty fertilisers (essential for Indian agriculture), and even tunnel boring machines (critical for infrastructure projects like metros and smart cities). These are not isolated trade hiccups but part of a broader strategy to weaponize trade and technology transfers. Beijing is keen to prevent a large-scale migration of Chinese technology and manufacturing expertise to India. By restricting technology and skilled labour exports, China aims to create bottlenecks in India's supply chain just as it begins gaining global traction.There could be two key motivations behind China's behaviour. India's post-Galwan measures, such as tightened scrutiny of Chinese FDI, banning hundreds of Chinese apps and blocking Huawei and ZTE from 5G trials in 2021, have significantly curtailed China's economic leverage in India. Denied access to one of the world's largest markets, Beijing may be retaliating economically to assert its relevance and influence. Secondly, China wants to strengthen a pre-emptive control of supply chains. As India's PLI schemes begin to yield tangible results -- Apple boosting iPhone production, semiconductor plans taking off and India becoming a major mobile phone exporter -- China wants to prevent a global narrative shift from 'Make in China' to 'Make in India".India's dependence on China for several intermediate goods, especially in electronics, EVs, chemicals and rare earth elements, is substantial. China controls more than 85% of global rare earth processing, and a large portion of Indian imports for electronics manufacturing still originate from China. In the short term, China's restrictions can cause delays, cost overruns and capacity gaps.However, the long-term picture is more nuanced. The exit of Chinese engineers from Foxconn's Indian operations is deemed to have a "negligible" impact, as per Apple analyst Ming-Chi Kuo. He noted that there were not many Chinese employees at the company's India iPhone facilities. Production capabilities at Foxconn's India iPhone facilities were established by the company's Taiwanese employees, like those from FIH's Minsheng plant, not Chinese employees, he said. Even amid US tariff threat over iPhones, Foxconn has not slowed down its ongoing mega expansion in India. This indicates that while Chinese know-how may have played a critical role in the initial ramp-up, Indian talent and local engineering capabilities are set to mature rapidly.Moreover, global firms are increasingly bullish on India. Apple's contract manufacturers, including Foxconn, Pegatron and Wistron (now owned by Tata), continue to expand their Indian footprints. With supply chain diversification being a geopolitical imperative for Western companies, India remains a central part of this new global manufacturing map.India has recognized the vulnerabilities arising from over-reliance on China and has responded with a mix of policy, investment and diplomatic initiatives. India is offering financial incentives across 14 sectors -- including semiconductors, electronics, EVs and pharmaceuticals -- to attract investment and scale up manufacturing. The PLI scheme has already contributed to India becoming the second-largest mobile phone producer in the world.Recently, in a direct response to China's rare earth squeeze, India is preparing a Rs 3,500–5,000 crore PLI scheme to boost the local manufacturing of rare earth magnets. Under this scheme, Sona Comstar, a major importer of these magnets, has announced plans to produce them domestically, signaling industry alignment with national goals. India is actively exploring alternate sources for specialty fertilisers and critical minerals, including deals with countries like Australia, Vietnam, and African nations. This aims to insulate agriculture and green energy sectors from Chinese pressure. India is investing heavily in upskilling its labour force and creating engineering talent pipelines to reduce dependency on Chinese technicians.Government-backed programmes and partnerships with industry are part of this push. India is negotiating trade agreements with the US and EU while it has already signed an FTA with the UK. These deals will open up new export markets and attract investment, helping India position itself as a global manufacturing hub outside China's shadow.India's manufacturing ecosystem is still young, but it is evolving rapidly, powered by a combination of global realignment, domestic ambition and geopolitical support from the West. China's export denials and covert trade obstructionism are signs of concern but they also reflect a realization that India is no longer just a large market -- it is a serious manufacturing contender .Ultimately, China's restrictions may serve as an accelerator rather than an obstacle. They are pushing India to build domestic capabilities, diversify partnerships, and focus on resilience. If India continues on its current trajectory - with strategic clarity, global cooperation, and internal reforms - it has the potential not just to withstand China's pressure, but to emerge stronger from it.