Introduction
- India, along with several other countries including the US, has imposed a fresh wave of anti-subsidy measures targeting imports from China.
- The US has introduced substantial tariff hikes, including a 100% duty on electric vehicles, a 50% duty on solar cells, and a 25% duty on steel, aluminum, EV batteries, and certain minerals.
- In 2024, India launched over 30 anti-dumping investigations against China, focusing on industrial goods such as plastic processing machines and stainless steel pipes.
- These actions reflect growing global concerns over the surge of Chinese imports, commonly referred to as “China Shock 2.0,” which has significantly impacted many countries, including India.
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China Shock
- China Shock refers to the entry of low-cost Chinese goods flooding the global market, leading to a slump in prices and significant job losses worldwide.
China Shock 1.0:
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- Entry into WTO: China’s entry into the World Trade Organization (WTO) led to a surge in its exports, causing job losses in countries like the US and India.
- The intention behind China’s WTO accession was to integrate China into global markets and foster political reform.
- However, it resulted in significant economic disruption globally, with China evolving into a “capitalist tiger” while retaining its “communist dragon” political structure.
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China Shock 2.0:
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- Post-COVID Surge: China’s exports surged despite a global economic slowdown post-pandemic.
- The International Monetary Fund (IMF) noted that China’s share of global exports increased by 1.5 percentage points, whereas economies like the US, Japan, and the UK saw declines.
- This surge mirrors the impact of China’s WTO accession, affecting manufacturing sectors across the world.
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Rising Chinese Imports in India
- Renewable Energy: Despite investing $4.5 billion in renewable energy manufacturing, 80% of India’s solar cells and modules are imported from China, highlighting India’s dependence on Chinese products.
- Steel Sector: Chinese steel imports reached a seven-year high in 2024, eroding profits for domestic manufacturers and contributing to a significant decline in India’s steel exports.
- Electronic Components: India imported over $12 billion in electronic components from China in FY24, making up more than half of its total electronic imports, despite increasing investments in domestic manufacturing.
Reasons Behind Increasing Chinese Imports
- Dumping by China: China employs predatory pricing to dominate high-tech sectors such as solar equipment, electric vehicles, and semiconductors. This aggressive strategy has caused a slump in prices globally, leading to increased imports from China.
- Export Strategy to Counter Domestic Crisis: Faced with an economic slowdown, property crisis, and weak domestic demand, China has focused on increasing export volumes. This leads to lower prices, making Chinese products more attractive to importers like India.
- Dominance in Global Supply Chains: China controls the global supply chain for many advanced technology products, such as solar cells and silicon wafers. For instance, China produces 85% of solar cells and 97% of silicon wafers, making it difficult for India to reduce its dependency.
- Limited Domestic Capacity: India has not yet achieved the scale or technical expertise to manufacture certain products at the same quality or volume as China. This is evident in sectors like electronics, where India relies on China for components like semiconductors and displays.
- Technological and Innovation Gaps: China’s advanced research and development capabilities in high-tech sectors like telecom and renewable energy surpass India’s current R&D capacity, resulting in greater dependence on Chinese goods.
- Industrial Policy Challenges in India: Regulatory challenges, infrastructure bottlenecks, and high input costs have hindered the growth of India’s manufacturing sector, leading to a reliance on Chinese imports.
Initiatives to Reduce Import Dependence on China
Make in India (2014):
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- Aimed at positioning India as a global manufacturing hub by encouraging both domestic and foreign investments across 25 sectors, including electronics and defense.
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Production-Linked Incentive (PLI) Scheme:
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- This scheme provides financial incentives to boost large-scale manufacturing in sectors like electronics and pharmaceuticals, encouraging domestic production.
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National Infrastructure Pipeline (NIP):
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- A ₹111 lakh crore initiative to boost infrastructure development across key sectors such as energy and transport, aimed at supporting domestic manufacturing growth.
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Atmanirbhar Bharat Abhiyan (Self-Reliant India Mission):
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- A comprehensive package of reforms to make India self-reliant in critical sectors, with a particular focus on manufacturing.
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Ease of Doing Business Reforms:
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- Measures such as simplifying GST, digitizing government services, and reducing bureaucratic processes have improved India’s business environment.
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Way Forward
- Industry 4.0 Adoption: Leveraging digital transformation technologies, such as automation and artificial intelligence, can help India’s manufacturing sector achieve a 25% share of GDP, enabling competitiveness with China.
- Investment in Infrastructure: Enhancing infrastructure quality and reducing logistics costs can attract more investment and support the manufacturing industry’s growth.
- Focus on Export-Oriented Manufacturing: Encouraging export-focused manufacturing can help Indian companies access new markets, enhancing competitiveness and reducing reliance on imports.
- Support for MSMEs: Increasing financial assistance for MSMEs in the manufacturing sector will foster growth, innovation, and competitiveness within the domestic economy. For instance, increasing credit access through government schemes can bolster MSMEs’ capacity to compete globally.