A rapprochement between Asia's two largest economies is unfolding in stages, from restored direct flights to a leader-level summit in New Delhi, yet the underlying trade relationship tells a different story. The more India tries to assert economic independence from Beijing, the more its factories, phone assemblers and drugmakers reveal how much they still rely on Chinese inputs.
A Thaw on the Surface, Asymmetry Underneath
Narendra Modi and Xi Jinping's meeting last month, along with the resumption of flights and expanded visa services, marks a genuine easing of tensions that followed the 2020 border clashes. But diplomatic gestures do not rebalance a trade relationship built over decades. China's share of global value-added manufacturing stood at 28% in 2025, against India's 3%, according to World Bank figures. On merchandise exports, China's 16.3% global share dwarfs India's 1.7%. India's trade deficit with China reached $91 billion by August this year and is on pace to set a new annual record.
Why the Imports Keep Growing
India's dependence is not simply about volume - it is structural. The largest import categories from China, including electrical and electronic equipment, machinery and chemicals, are mostly intermediate goods that Indian manufacturers need to build finished products. Smartphone assembly and generic pharmaceutical production, two of India's manufacturing success stories, both still rely heavily on Chinese-made components and inputs. That creates a paradox: the more India exports, the more it needs to import from its northern neighbour to keep production lines running.
This exposure carries strategic weight. Beijing's decision in April 2025 to impose export licensing requirements on seven heavy rare earths exposed how vulnerable India's automotive and defence manufacturing sectors remain to decisions made in China.
Homegrown Gaps Compound the Problem
Some of the weakness is self-inflicted. India's research and development spending stood at just 0.64% of GDP in 2024, well below that of other major Asian economies, a shortfall driven partly by limited private-sector investment. Skilled-labour shortages add to the strain - Foxconn's withdrawal of Chinese staff from its Indian iPhone factories in 2025 showed how reliant advanced manufacturing still is on foreign technical expertise that India has not yet developed domestically.
- India has eased FDI restrictions, allowing Chinese firms to take stakes of up to 10% in Indian companies.
- Fast-track clearance within 60 days has been introduced for investment proposals in five high-technology sectors, provided they are structured as majority Indian-owned joint ventures.
- Indian exports to China rose 40% between April and August, led by industrial machinery, automotive components, printed circuit boards and smartphones.
What India Still Needs to Offer
Export growth looks encouraging on paper, but much of it still depends on Chinese components moving through Indian assembly lines. Smartphone manufacturing, India's clearest export win, remains only 18-20% locally sourced. Even the spillover from Northeast Asia's AI-driven hardware boom, which has sent sub-component work to Indian firms, reinforces rather than reduces reliance on Chinese supply chains.
The deeper question is what India offers in return for deeper technology transfer. A large consumer market, a young workforce and incentive schemes such as tax breaks and production-linked payouts are real advantages, but China has shown little appetite for sharing its most advanced capabilities in electric vehicles, batteries, solar technology and electronics. Beijing has actively pressured its own companies to withhold such technology abroad.
The unresolved 3,800-km Himalayan border remains a persistent source of friction, even as diplomats in August pledged to pursue a "fair, reasonable and mutually acceptable settlement." No resolution appears close. Both governments seem content, for now, to let economic ties expand around that unresolved dispute. But unless India converts this opening into durable domestic manufacturing and research capacity, the relationship between the two economies will stay fundamentally one-sided.