Economic Survey Advocates for Increased Chinese Investment in India

The Economic Survey 2023–24 stated that India will inevitably integrate itself into China's supply chain to support domestic manufacturing and integrate itself into the global supply chain, which is viewed as an intriguing departure from India's previous approach.

According to the report, India will have to choose between letting Chinese investments into the nation or depending entirely on Chinese imports.

As evidence that the China + 1 policy won't lead to a complete shift in economic relations away from India's northern neighbour, the poll mentioned South Korea, Taiwan, Mexico, and Vietnam, all of which benefited directly from trade diversion from China on the part of the US.

These countries showed growth in Chinese FDI even as their export percentage to the US grew.

The research asserts that the pursuit of a China plus one strategy cannot ignore China and presents India with two options to capitalise on this opportunity: either integrate into China's supply chain or encourage foreign direct investment (FDI) from China.

Among these options, the research indicated that, in line with East Asian countries, concentrating on FDI from China held greater promise for increasing India's exports to the US.

It further stated that, as China is India's main import partner and their trade deficit has been widening, adopting FDI as a strategy will be advantageous.

The research concludes that it is more profitable for Chinese businesses to invest in India and subsequently sell the goods to these markets rather than importing from China, as the US and Europe move their immediate sourcing away from China.

Due to weak domestic demand and growing industrial capacity, China's manufacturing trade surplus has been growing since 2019. As a result, Chinese companies are looking into new international markets, which is causing a global price collapse and forcing many producers in other countries out of business.

For example, China's real estate industry has underperformed since 2021, which has resulted in severe overcapacity and a slump in global steel prices. This has put tremendous pressure on producers in India, Vietnam, Brazil, and other nations.

China's exports of steel products are expected to soar by 27% in 2024, following a 35% increase in the previous year.

The study issues a warning, pointing out that China's hegemony in numerous product categories raises the possibility of economic coercion—in which the state restricts access to essential commodities in order to exert political pressure.

According to the report, China blocked India's access to solar equipment as a result of India's anti-dumping investigation against Chinese companies, which was initiated to safeguard domestic industry.

According to the report, developing nations will need to find a strategy to counter China's import competitiveness while also enhancing their own manufacturing capacities, occasionally using Chinese investment and technology.

As the Rhodium Group analysis noted, Brazil and Turkey recently increased tariffs on Chinese-made electric vehicles while simultaneously taking action to draw Chinese foreign direct investment into the industry.

In light of India's significant bilateral trade deficit with China and susceptibility to sudden supply disruptions, the report recommends a similar course of action. It notes that substituting investments from China for some well-chosen imports increases the likelihood of developing indigenous know-how in the future.

The research has argued in favour of India joining China's supply chain, citing the reality that there is no such thing as the best option all the time and that decisions must be taken between the second and third best options.

"The subject at hand is one that even the powerful United States is debating, and it's a crucial one. How can you gain from having a sizable and technologically advanced market next to you without sacrificing your strategic independence? I believe it is feasible. Perhaps this isn't the ideal moment to do it. However, I believe that in the long run, one should look to a future in which the economies of China and India may even be more interconnected than they already are, keeping in mind that, if my calculations are correct, China continues to be our second-largest trading partner after the United States." Suman Berry, the NITI Aayog Vice Chairperson.