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India and other countries of the world, including the US, have imposed fresh wave of anti-subsidy measures, against the import of goods from China. The US has imposed significant tariff hikes on imports from China, including a 100% duty on electric vehicles, 50% on solar cells, and 25% on steel, aluminium, EV batteries, and certain minerals.
India has launched over 30 anti-dumping investigations against China in 2024, targeting industrial goods like plastic processing machines and stainless steel pipes. These actions reflect rising global concerns over the influx of Chinese goods. It has been dubbed as ‘China Shock 2.0‘, which has impacted various countries, including India.
What is China Shock? What is the history of China Shock?
China Shock- China shock refers to the flooding of low-cost Chinese goods in the global market. This leads to a global slump in prices of the goods, causing job-losses worldwide.
| China Shock 1.0 | The entry of China in WTO, led to flooding of low-cost Chinese goods causing job losses in the US and other countries, including India. The motive behind US allowing Chinese entry into WTO, was to lead to political reform in China and increase US exports into China. However, ‘China Shock‘ followed and the ‘communist dragon‘ became the ‘capitalist tiger‘. |
| China Shock 2.0 | China’s exports have surged post-COVID, despite a global slowdown. The International Monetary Fund (IMF) has noted that China’s share of global exports has increased by 1.5 percentage points, while other major economies like the US, Japan, and the UK have seen a decline in their global export shares. These concerns are similar to the early 2000s, when China’s WTO accession led to a surge in global exports, and damaged manufacturing sectors worldwide. |
Indian Sectors in which Chinese Imports are rising
| India’s renewable energy sector | Despite investing $4.5 billion in clean energy manufacturing, 80% of India’s solar cells and modules are still imported from China. |
| Steel sector imports | In India, steel imports from China hit a seven-year high in 2024, while domestic steel exports have declined significantly. The influx of cheap Chinese steel is eroding profits for Indian manufacturers. |
| Electronic components imports | Despite increasing investments in mobile phone manufacturing, India remains heavily dependent on China for electronic components. In FY24, India imported over $12 billion in electronic components from China, comprising more than half of its total electronics imports. |
What are the reasons behind India’s increasing imports from China?
India’s imports from China have risen sharply, from $10.87 billion in 2005-06 to over $100 billion in 2023-24. The reasons behind the increasing imports are as followed-
1. Slump in prices on account of Chinese dumping- China is using predatory techniques to dominate high-tech sectors like solar equipment, electric vehicles, and semiconductors. The dumping of these goods has led to a crash in their prices, leading to increased imports from China.
2. Chinese use of exports to stave off domestic economic crisis- China is relying on exports to drive growth to counter its domestic economic slowdown, property crisis, weak credit, and low consumer demand. This increase in export volume has led to fall in slump in prices of Chinese goods, making them attractive to import in countries like India.
3. Chinese dominance on global supply Chains- China dominates the global solar supply chain of most of the new technology products. This leads to increase in import dependency on China. For ex- China produces 85% of solar cells and 97% of silicon wafers, making it difficult for India to reduce its dependence on China for solar sector.
4. Lack of Domestic Capacity- In certain sectors, India has failed to develop the manufacturing scale or technical expertise needed to produce goods at the same quality or volume as China. For ex- The reliance of Indian electronics sector on China for finished products and components like smartphones, semiconductors, and displays.
5. Technology and Innovation Gaps- China has developed advanced capabilities in high-tech sectors like electronics, telecom equipment, renewable energy (e.g., solar panels). However, India lacks the research and development (R&D) capacity to match the Chinese technological advancement, leading to reliance on Chinese products.
6. India’s Industrial Policy Limitations- Challenges such as regulatory hurdles, infrastructure bottlenecks, and high input costs have slowed the growth of India’s domestic manufacturing sector.
What initiatives have been taken to reduce India’s rising import dependence on China?
| Make in India Initiative (2014) | The ‘Make in India‘ initiative was launched to promote India as a global manufacturing hub by encouraging both domestic and foreign investments in the sector. It focuses on 25 sectors, including automobiles, electronics, textiles, defence, and biotechnology. |
| Production-Linked Incentive (PLI) Scheme | The government has introduced Production-Linked Incentive (PLI) scheme, which offers financial incentives based on incremental sales, to promote large-scale manufacturing in specific sectors like electronics, pharmaceuticals, automobiles, and auto components. |
| National Infrastructure Pipeline (NIP) | The National Infrastructure Pipeline (NIP) aims to provide better infrastructure to boost the manufacturing sector. It includes projects worth ₹111 lakh crore (~$1.5 trillion) across sectors like energy, transport, water, and social infrastructure. |
| Atmanirbhar Bharat Abhiyan (Self-Reliant India Mission) | This comprehensive package of reforms and incentives aims to make India self-reliant in key sectors, particularly in manufacturing sector. |
| Ease of Doing Business Reforms | India has made significant strides in improving its Ease of Doing Business ranking by simplifying processes and reducing bureaucratic hurdles like GST reforms, digitization of government services and reducing the number of environmental clearances. |
What should be the Way Forward?
1. Industry 4.0 in Indian Manufacturing- India’s manufacturing sector could achieve a 25% share in GDP through Industry 4.0 technologies. There is a need to increase the employment of digital transformation technologies by Indian manufacturers to compete with China.
2. Increasing Investment in Industrial Infrastructure- We must aim to enhance the standard and accessibility of infrastructure, and aim to reduce logistics cost. This may lead to increased investment and business interest in the manufacturing industry.
3. Promotion of Export-Oriented Manufacturing- Encouragement of the development of export-oriented manufacturing could help Indian businesses tap into new markets and increase their competitiveness.
4. Increased Financial Assistance- Enhancement of MSMEs’ access to finance in the manufacturing sector can support their growth and development.
Conclusion
The rapid influx of Chinese goods is reshaping global trade dynamics, with countries like the US and India implementing protective measures, like anti-dumping protection measures. As China continues to increase exports amid domestic economic challenges, other nations must balance their economic growth strategies with efforts to protect local industries from another ‘China Shock‘.
| Read More- The Indian Express UPSC Syllabus- GS 2- Policies of Developed and developing countries affecting India’s |
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