Further Further China: India Needs Beijing To Beat Beijing
India’s position as the leading alternative to Chinese manufacturing faces an unexpected complication, according to new Bernstein research: it requires more engagement with China, not less.
Since the 2020 Galwan border clash, India has pursued policies designed to reduce Chinese economic influence, including FDI restrictions, app bans, and anti-dumping duties. Yet trade data tells a different story.
Indian imports from China have increased 56% over this period, while the bilateral trade deficit has expanded from $48.6 billion to more than $85 billion, Bernstein’s analysis shows. Indian exports to China, meanwhile, have remained essentially flat, growing just 0.3%.
More significantly, the research reveals a structural dependency in India’s export success. In sectors where Indian global exports exceed $3 billion, there is typically a corresponding Chinese import volume exceeding $1 billion. This pattern holds across multiple manufacturing categories, including vehicles, electronic components, and mechanical appliances.
The data suggests a clear relationship: $1 of imports from China contributes to $5 of export volume in value-add terms.
“It is, perhaps, ironic that India will need China in order to emerge as an alternative to China,” notes Bernstein.
This may explain recent pressure from Indian businesses to ease restrictions on Chinese investment and professional visas. Chinese business visitors to India have declined from 50% of total business arrivals pre-COVID to 43% in 2022.
The timing is notable, coming as India and China announce a return to pre-2020 positions along their disputed border.
The findings also raise questions about the viability of manufacturing diversification strategies that don’t account for existing supply chain integration with China.
Bernstein also notes that recent manufacturing growth has been “camouflaged by high government capex,” while private capital expenditure “has not yet scaled up” — a dynamic that warrants separate examination.