India has emerged as the world's second-largest smartphone manufacturer, posing a challenge to China's dominance in the sector. In response, China is employing subtle tactics to undermine India's rise by restricting technology transfers, recalling Chinese workers from Indian plants, and imposing informal barriers on supplies.
One of the key strategies China is using is restricting the outflow of talent, technology, and equipment. Recently, hundreds of Chinese engineers and technicians working at Foxconn's iPhone plants in India were told to leave. Over 300 skilled workers have exited Foxconn's iPhone plants in southern India. These engineers were involved in assembling devices and training India's workforce, transferring decades of process knowledge. The Chinese government has been informally urging companies and regulators to stop exporting key equipment and restrict the movement of skilled labor to destinations like India. This move is designed to slow down the "China plus one" strategy adopted by multinational corporations to hedge against geopolitical risks.
In addition to restricting the movement of skilled labor, China has also placed curbs on the export of magnets to India, which are used in manufacturing automobiles and electronic products. There have also been reports of delays in the delivery of critical machinery from China to India.
These actions have raised concerns about potential disruptions to iPhone manufacturing schedules and the operations of other Chinese phone companies like Oppo and Vivo, which have large manufacturing facilities in India. These companies rely on components imported from China to manufacture final products in India.
India's mobile manufacturing sector has witnessed significant growth, with the value of mobile phone manufacturing reaching Rs 4.1 lakh crore over the past decade. This growth has been driven by government policies such as the Production Linked Incentive (PLI) scheme, which has attracted global players and boosted local production. However, India still faces challenges in building a resilient supply chain and reducing its dependence on imported components. The domestic value addition in electronics manufacturing in India is estimated to be around 15%, significantly lower than China (37-40%) and Vietnam (23-25%).
Despite these challenges, India has the potential to become a global manufacturing hub, particularly in mobile phones and laptops. The government is committed to making India's manufacturing economy more export-oriented and streamlined. To achieve this, India needs to focus on building a strong ancillary industry for key components, enhancing R&D investments, and improving infrastructure.
The India-China relationship is complex, characterized by both cooperation and competition. While trade volumes have grown, India faces a significant trade deficit with China. In fiscal year 2024-25, out of total bilateral trade worth US$131.84 billion, India's trade deficit increased to US$99.2 billion. India's dependence on China is unlikely to decrease in the short term, as it relies on China to achieve its economic growth targets. However, India has curtailed most incoming Chinese investments since 2020, including rejecting a proposed US$1 billion investment from Chinese car manufacturer BYD.
As India emerges as a key global manufacturing hub, China's tactics reveal its unwillingness to allow fair competition. However, India cannot afford to forfeit its economic ties with China if it wants to maintain its economic growth. Sustained dialogue and mutual trust will be essential to navigate the complex relationship and address the economic and security concerns.
