In recent weeks, there have been several instances suggesting that Chinese companies are limiting the export of essential advanced capital goods and machinery to India. This is causing a significant struggle for Indian manufacturers of electronics, solar panels, and electronic vehicles as they grapple with shortages in vital machinery. Despite numerous unsuccessful attempts at industrialization over the years, India was finally making strides in the electronics manufacturing sector. However, China’s recent export restrictions could put a damper on India’s budding industrialization efforts.
India’s per capita income is around $2,900, making it a lower-middle income economy that requires a robust manufacturing base to advance economically. China, with its dominant position in most manufacturing sectors, is a crucial trade partner for India. If China’s export restrictions persist, it could be the most significant geoeconomic challenge for India since the sanctions imposed by the West after their successful nuclear test in 1998.
These export restrictions coincide with a recent diplomatic thaw between the two nations. Tensions escalated in early 2020 when China’s People’s Liberation Army (PLA) encroached on Indian-controlled territory, leading to lethal skirmishes along the disputed border in the Ladakh region. This territorial dispute has persisted, leaving the Line of Actual Control heavily militarized.
During this period, India implemented an investment screening law targeting Chinese companies, among others. Despite India’s relative technological backwardness compared to China, these measures were more symbolic than practical strategies to pressure China. However, the bilateral relationship entered a phase of intense tension. Yet, recent diplomatic advancements hinted at a possible shift towards a less hostile relationship.
In light of the positive diplomatic signals, it is puzzling why China would choose to block the exports of critical machinery to India. There could be three interconnected reasons for China’s actions. China could be exploiting India’s dependence on it, perceiving India’s early manufacturing successes as a threat, and leveraging the global geopolitical market fluctuations.
India’s industrialization is a strategic move to accumulate wealth and develop adequate power to deter its adversaries. China’s export curbs could be seen as a countermeasure against India’s initiatives. China may also be trying to gain early leverage over India due to the changing global geopolitical climate.
The critical question is whether India can successfully industrialize without Chinese high-tech capital goods. Beijing seems to be banking on this dependency. This leaves India with three potential solutions: seeking alternative sources for capital goods, reorienting its strategic stance towards the China-U.S. relationship, or moving closer to China at the expense of its relationship with the U.S.
India is unlikely to choose any of these options outright and will likely seek a balanced approach. Regardless, as India continues its path towards industrialization, such geoeconomic challenges will likely increase, requiring astute statecraft to navigate.
