The Silent
Competition
China is using its dominance in global supply
chains to engage in competition that avoids open conflict. India's ambitions to
establish a global electronics hub and become a significant defense exporter
are now under a gradual yet systematic threat. This pressure is not the result
of domestic policy errors or a decline in global demand; it is a calculated
strategy orchestrated by China.
A Subtle
Form of Economic Warfare
This situation does not resemble a traditional
trade war characterized by tariffs or sanctions. Instead, it manifests through
complex regulations, hidden barriers, and deliberate uncertainty. China's
export denial strategy has emerged as a potent tool of economic coercion aimed
at undermining India without direct confrontation. Tactics such as unexplained
customs delays, arbitrary export license rejections, and the sudden withdrawal
of technical support during critical projects are employed with plausible deniability,
rarely resulting in global outrage but cumulatively causing significant harm.
The Rare
Earth Magnet Crisis
The consequences of this strategy are evident
in the ongoing rare earth magnet crisis, crucial for India's vehicle
manufacturing sector. Since early April, China has effectively halted shipments
of these magnets, which are essential for motors, turbines, and advanced
electronics. Major companies like Tata Motors, Hero MotoCorp, and Maruti Suzuki
have scrambled to address the issue, but efforts have largely been futile.
Trade records indicate that over 35 Indian firms have faced outright denials
for magnet procurement, leading to dangerously low inventories and potential
production halts.
A Broader
Supply Chain Challenge
The rare earths crisis is just one example of
a larger trend affecting multiple sectors including solar, electronics, and
electric vehicles. For instance, disruptions at Foxconn's iPhone assembly
facilities occurred when Chinese engineers were abruptly recalled, delaying
shipments of crucial manufacturing equipment. As India seeks to position itself
as a global manufacturing alternative, its economic aspirations are
increasingly vulnerable to China's quiet exploitation of critical supply
dependencies.
Confronting
a Silent Adversary
India must now confront a complex and urgent
question: how to respond to an adversary that engages in economic warfare
without formally declaring it? The answers are not straightforward.
Navigating
a Manufacturing Minefield
Despite the pressing need for action, India
faces significant constraints in countering China's tactics. Each potential
response carries risks of collateral damage or fails to adequately address
China's dominance.
1. Lack of
Immediate Alternatives
Finding replacements for restricted critical
components is not straightforward, given the complexity of specialized
manufacturing chains that are often geopolitically intertwined. India is
attempting to diversify its sources for rare earth magnets by engaging with
countries like Vietnam, Indonesia, Japan, the US, and Russia. However, many of
these countries have limited capacity for exports or face their own challenges,
making immediate alternatives difficult to secure.
2. Limited
Leverage for Retaliation
India's ability to retaliate against Chinese
export restrictions is constrained by its structural dependence on China. Over
the past 15 years, China's share in India's industrial imports has increased
significantly, giving Beijing considerable leverage. Retaliatory measures could
disrupt India's own manufacturing ecosystem, as many sectors rely heavily on
Chinese inputs, making any countermeasures potentially self-defeating.
3.
Time-Consuming Capacity Development
India's efforts towards self-reliance through
initiatives like the Production Linked Incentive (PLI) scheme are strategically
sound but operationally slow. Developing capacity in capital-intensive sectors
takes years, not months. For instance, building refineries for rare earths or
scaling solar manufacturing capabilities is a lengthy process, hampered by
ongoing reliance on Chinese technology and components.
4.
Dependence on Chinese Intermediates
Global supply chains remain heavily reliant on
Chinese intermediates, even as India explores "China+1" strategies.
Key materials for products like electric vehicle batteries are predominantly
processed in China, creating hidden dependencies that persist despite shifts in
production locations.
Moving
Beyond Traditional Strategies
While traditional strategies like domestic
capacity building and import diversification remain essential, they are
insufficient to address the targeted coercion posed by China. India needs
sophisticated, real-time responses that go beyond cliches of self-reliance to
effectively navigate this complex economic landscape
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