India China Trade Doubles in Five Years Even as Both Sides Erect Barriers in Pathways

Trade between India and China has nearly doubled in five years, leaving New Delhi with a widening deficit and a difficult choice over how to build its industrial future.

· India-China trade reaches $151 billion: Bilateral goods trade has nearly doubled in five years to about $151 billion annually.

· Trade imbalance widens sharply: India now imports roughly seven times more goods from China than it exports, making China a major contributor to India’s trade deficit.

· Indian factories depend on Chinese inputs: Chinese machinery, electronic components, materials and industrial equipment are deeply embedded in Indian manufacturing.

· Critical-sector dependence:

o EVs: Depend on Chinese rare-earth magnets.

o Pharmaceuticals: Indian drugmakers rely heavily on Chinese active pharmaceutical ingredients and other inputs.

o Green technology and solar: China maintains a major cost advantage.

· Geopolitical tensions failed to reduce trade: Despite the 2020 India-China border clash, trade dependence has increased rather than declined.

· Xi Jinping’s India visit: Chinese President Xi Jinping is visiting India for the first time in more than six years for the BRICS summit, with trade expected to be a major issue alongside the border dispute.

· Energy costs worsen India’s trade deficit: The U.S.-Israeli war with Iran has raised energy costs, while increasing Chinese imports further widens India’s overall trade deficit and puts pressure on the Indian rupee.

· China’s global surplus reaches record level: China’s trade surplus was nearly $1.2 trillion last year, intensifying concerns among trading partners about Chinese industrial dominance.

· India cannot simply shut out China: Indian industrial ambitions require Chinese machinery, technology, components and materials, making an abrupt reduction in imports impractical.

· Call for greater Chinese investment: Some Indian economists advocate actively inviting Chinese companies into critical sectors such as green technology, semiconductors and manufacturing to obtain capital and technology.

· China’s cost advantage: China is estimated to have around a 30% cost advantage over other exporters in areas such as batteries and solar power.

· India imposed restrictions after 2020: Following the border clash, India banned TikTok and dozens of Chinese apps and restricted Chinese investment in Indian start-ups.

· India missed the supply-chain opportunity: When multinational companies sought alternatives to China after 2020, India hoped to become a major manufacturing hub, but Vietnam and other Southeast Asian economies captured much of the investment.

· China remains central to Asian supply chains: Even countries such as Vietnam that are alternatives to China continue to import heavily from China for machinery, equipment and materials.

· Indirect Chinese imports remain significant: Products imported into India from Southeast Asia may contain substantial Chinese content because they are often processed or repackaged Chinese goods.

· India-China relationship creates mutual opportunities: India needs Chinese capital and technology, while China wants access to India’s rapidly growing consumer and industrial market.

· High-tech manufacturing is the key battleground: India wants Chinese investment that strengthens its own manufacturing capacity rather than simply allowing Chinese companies to dominate Indian markets.

· Apple provides an example: About one-quarter of Apple’s iPhone manufacturing has shifted to India, demonstrating India’s potential to capture portions of China-centred supply chains.

· China seeks to preserve manufacturing dominance: Beijing has an interest in retaining its position as the world’s indispensable manufacturing base, even while Chinese companies seek opportunities in India.

· Visa restrictions affect business: Travel between India and China remained constrained after 2020. India has eased visa issuance, while China has tightened exit restrictions for some citizens on grounds of industrial or technological security.

· Business visas may be discussed at BRICS: India is expected to seek greater access for business travellers and Chinese engineers, which could facilitate investment and technology cooperation.

· India has bargaining power: Cooperation with companies such as Foxconn can help India gradually build alternative manufacturing capacity, while India’s huge 1.4-billion-person market gives it significant negotiating leverage.

· China can weaponize strategic supply chains: Restrictions involving rare-earth magnets illustrate China’s ability to use its dominance in critical inputs as economic leverage.

· Pharmaceutical vulnerability: India’s globally important pharmaceutical industry remains dependent on China for numerous pharmaceutical ingredients, creating a strategic supply-chain risk.

· Rupee remains under pressure: Continued imports exceeding exports create persistent pressure on the Indian rupee, particularly when higher oil prices simultaneously increase India’s import bill.

Key takeaway

India’s China problem is not simply a question of reducing imports—it is the deeper dependence of Indian industrial production on Chinese machinery, technology and critical inputs. India therefore faces a difficult balancing act: attract Chinese capital and technology to build domestic manufacturing capacity while preventing excessive strategic dependence on China.

[ABS News Service/12.09.2026]

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 neighbor. 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-to-hand 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, will 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 U.S.-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. The U.S. Treasury secretary, Scott Bessent, accused China of blocking a joint statement criticizing countries “with excessive and persistent external surpluses.”

As India hosts China at the BRICS summit this 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,” Mr. Aiyar said. In batteries and solar power alone, he estimated, China has a 30 percent 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 start-ups.

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.”

That 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.

Mr. 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.”

That leaves room for dealmaking. India wants to have access to Chinese money and technology. China wants India’s potentially enormous market.

But neither is willing to end up on the losing side of that exchange. Chinese companies do not want to miss the chance to build their brands in fast-growing India, even if its average consumer still has relatively little to spend. India, meanwhile, wants to protect its companies from far more efficient competitors.

The tension is sharpest in high-value, high-tech manufacturing. India wants Chinese investments, but investment that helps build an Indian industrial base. Apple’s iPhone manufacturing, about a quarter of which has shifted to India, is a prime example.

China has an obvious interest in keeping its position as the world’s indispensable manufacturer, even if individual Chinese companies want to take advantage of India’s young work force and government subsidies. Some of its restrictions on trade with India appear intended to preserve that advantage.

The struggle extends even to the movement of people.

For much of the five years after the 2020 clash, travel was constrained by tit-for-tat restrictions, beginning with India’s blocking Chinese business and tourist visas and China’s responding in kind, with Covid-19 restrictions further complicating travel.

India began issuing visas more freely last year. But China has tightened its exit rules, preventing some Chinese citizens from traveling to places like India if it deems them a threat to national industrial or technological security.

Visas are among the practical disputes that Mr. Xi and India’s prime minister, Narendra Modi, could address at the summit, Mr. Pai said. “India will want some reassurances, both for business visas to China and engineers from China,” he said.

India has leverage, too. By working with companies like Taiwan’s Foxconn, one of Apple’s main contract manufacturers, it can gradually erode pieces of China’s industrial dominance. It can also restrict access to its domestic market of 1.4 billion people, a prize that will become more valuable as the average incomes in India rise.

But China has shown a willingness to use its dominance in strategic sectors as leverage. Rare-earth magnets, needed for electric cars and many other high-growth industries, are just one example. China has also gained enormous power over the production of many pharmaceutical ingredients, making India’s world-leading drug companies dependent on Chinese supplies.

Somnath Mukherjee, chief investment officer at ASK Wealth Advisors in Mumbai, worries about India’s global trade deficit.

It is “simple arithmetic,” he said, that the Indian rupee will remain under pressure as long as India buys more than it sells. The central bank can manage that, he said, even though higher oil prices and a flight to artificial intelligence stocks in the United States have made the task trickier.

“It is a fact that many countries, China and now the U.S. as well, have started weaponizing trade,” Mr. Mukherjee said. “China’s weaponized product access has become a source of massive concern.”