China boosts exports: Will it hurt India, other global markets?

With a slowing domestic economy, China is looking to global markets to absorb its excess production.

In Short

• China's economic slowdown leads to increased exports
• India's dependence on Chinese electronics remains high
• Opportunities arise for India with 'China Plus One' strategy

Remember the early 2000s, when China's entry into the WTO sparked intense debates? Some said it would lead to a new wave of economic growth, while others warned of job losses due to cheap Chinese goods flooding global markets.

Fast-forward to today, and we’re witnessing a similar scenario – what many are now calling ‘China Shock 2.0’.

This time, it's not just about textiles or low-cost electronics; it's about high-tech exports like solar equipment and electric vehicles.

With a slowing domestic economy, China is looking to global markets to absorb its excess production. So, what does this mean for India and the rest of the world?

Could it trigger another economic ripple effect, or will India seize the opportunity to rise?

Rise of China's high-tech exports

China is now pushing high-tech goods, rather than just cheap textiles and electronics. The country has invested heavily in sectors like solar energy and electric vehicles, leading to a flood of these goods into global markets.

Many countries, including India, are worried about the impact this could have on local industries. Many countries along with India has already taken steps to impose anti-subsidy measures to protect its domestic markets from the influx of Chinese goods.

This situation mirrors the original "China Shock" from the early 2000s, which caused job losses and trade imbalances worldwide. Back then, cheap Chinese goods, backed by low labour costs, overwhelmed global markets, and caused a decline in manufacturing jobs in many countries, including India.

China's economic slowdown

China is experiencing an economic slowdown, with a property crisis, low consumer demand, and weak credit growth. As a result, China is ramping up its exports to offset these challenges.

The Asian Development Bank recently noted that China's higher-than-expected exports were a key driver of growth in 2024. However, this has raised concerns for other countries, as increased exports from China could disrupt industries abroad.

According to the International Monetary Fund (IMF), this export push is part of China's strategy to support its economy during tough times at home. The IMF has warned that "China Shock 2.0" could lead to job losses and reduced industrial activity in other countries, including India.

India's trade with China

India’s trade relationship with China has seen significant changes over the years. Despite geopolitical tensions and efforts to reduce dependence on Chinese goods, India's imports from China have continued to grow. In 2023-24,

India's imports from China reached over $100 billion, a significant increase from previous years. Key imports include electronic components, solar equipment, and finished steel.

One of the sectors most affected by Chinese competition is India’s solar industry. China dominates the global supply chain for solar energy, producing a significant portion of the world’s solar cells and other related materials.

India has ambitious plans to achieve 500 GW of renewable energy capacity by 2030 and has invested billions in clean energy manufacturing. However, around 80% of India's solar cells and modules still come from China, making it difficult for India to grow its solar industry without Chinese imports.

India’s Economic Survey for 2023-24 also highlighted that China has been quietly restricting India’s access to solar equipment in response to anti-dumping probes. This could hinder India’s renewable energy goals, as it struggles to compete with China’s pricing power in the global solar market.

Surge in steel import

India is also seeing a surge in steel imports from China. According to official data, finished steel imports from China reached a seven-year high in 2024.

At the same time, Indian steel exports have slowed down, with a decline of nearly 19% year-on-year in August 2024. Indian steelmakers have asked the government to impose duties on Chinese steel imports to protect the local industry.

The problem is not limited to India. European steelmakers have also raised concerns, with reports that Chinese steel exports have driven down prices in Europe below the cost of production. This is part of a larger trend of Chinese products disrupting markets globally.

Electronics dependency

India's electronics industry has grown rapidly, with global companies like Apple increasing their manufacturing presence in the country. However, India remains heavily dependent on China for electronic components. In 2023-24, India imported electronic parts worth over $12 billion from China, accounting for more than half of total electronic imports.

Despite progress in boosting local electronics production, India still relies on Chinese imports, particularly for critical components used in mobile phones and other devices. This dependency highlights the challenges India faces in reducing its reliance on China while trying to build a more self-sufficient economy.

What's ahead?

The current wave of Chinese exports poses risks to many industries in India and around the world.

The potential job losses and trade imbalances could mirror the original "China Shock" from the early 2000s. However, there are also opportunities for India.

As Western countries grow more wary of Chinese products, many global companies are adopting a "China Plus One" strategy, looking to diversify their supply chains by investing in other countries, including India.

This shift could benefit India by attracting more foreign investment and boosting local manufacturing. India’s large market, young workforce, and growing economy make it an attractive destination for companies seeking to reduce their reliance on China.