India, China, and the Reshaping of Asian Manufacturing

Asia's manufacturing landscape in the mid-2020s is defined by an uneasy asymmetry: China's continued dominance of global production, and India's halting attempts to capture a larger share of the "China plus one" diversification wave. Despite a decade of policy interventions, India's manufacturing sector has not achieved the structural transformation these programs promised, with its share of GDP remaining well below both historical highs and stated targets. This gap has been compounded by China's use of opaque, non-formalized trade restrictions that function as tools of economic statecraft rather than declared policy. While some of these restrictions have since eased, they exposed the depth of India's dependence on Chinese inputs even as it seeks to position itself as an alternative manufacturing hub. Comparing India's trajectory with Vietnam's faster-moving electronics sector, this piece examines the structural, regulatory, and geopolitical constraints shaping India's industrial ascent, and argues that durable progress will depend less on symbolic wins than on building resilient, diversified supply chains anchored in critical minerals, semiconductors, and trusted trade partnerships.

What the Current Landscape Looks Like

In 2024, Asia’s economic trajectory continues to define global trade and supply chain dynamics. The region is projected to expand by 4.0%, led by China, which remains the world’s dominant manufacturing power. After recording 5.2% growth in 2023, Beijing has set a target of 5% for 2024, supported by accommodative fiscal measures, monetary easing, and infrastructure-driven investment. These policies sustained industrial output growth of 7.7% and expanded merchandise trade by 8.7%, reinforcing China’s unrivalled centrality in global manufacturing networks. In contrast, regional peers experienced uneven outcomes: Indonesia maintained steady growth at 5.0%, while Japan and South Korea grappled with weaker exports and tighter monetary conditions.

For India, this regional backdrop presents both opportunities and constraints. Having achieved 6.7% growth in FY24, India is expected to sustain robust momentum at 6.5–7% in FY25, driven by public investment and deeper integration into global supply chains. Yet the structural imbalance with China remains acute. China today accounts for 28.4% of global manufacturing—more than the next nine largest producers combined—while India’s share, despite recent advances, stands at just 3.3%.

The past five years have nonetheless witnessed a marked reconfiguration of global manufacturing. Multinational corporations are increasingly seeking to “de-risk” from China, long regarded as the world’s irreplaceable factory floor, in response to the combined shocks of COVID-19, rising geopolitical frictions, and supply chain disruptions. This has given rise to the "China plus one" (C+1) strategy, which involves retaining some operations in China while diversifying production to alternate locations. Electronics assembly has been the most visible example: Apple's shift of iPhone production toward India and Vietnam is the flagship case of a multinational hedging its China exposure while keeping the country as a manufacturing base. 

India has positioned itself as a candidate in this diversification process, though with limited success. Historically, Indian manufacturing has been constrained to 13–17% of GDP, hampered by infrastructure bottlenecks, policy inconsistency, and labor market rigidities. Manufacturing currently contributes around 13% to GDP; down from a high of roughly 17% in the mid-1990s and 2010s;  and the government's stated ambition is to lift this to 21% within six years, though the trajectory so far has been flat to declining rather than rising.

Taken together, the current manufacturing landscape is marked by two contrasting realities. On one hand, China retains an unparalleled dominance, even as it faces mounting external pressure. On the other, India’s industrial base is expanding but unevenly, buoyed by policy initiatives and global demand for diversification but constrained by longstanding domestic limitations. The interplay between these dynamics will decisively shape the evolution of manufacturing resilience and supply chain reconfiguration across South Asia.

Technology, Semiconductors, and Rare Earths: China’s Strategic Constraints

India’s ambition to position itself as a global manufacturing hub is running into persistent headwinds as China tightens controls over critical technologies, skilled labour, and essential mineral exports. Recent developments highlight how Beijing deploys economic levers in ways that are both opaque and coercive, slowing India’s industrial ascent while preserving its own competitive edge.

Persistent concerns over bureaucratic hurdles and financial instability continue to weigh on investor confidence. The collapse of the $19.5 billion Foxconn-Vedanta semiconductor venture in Gujarat in July 2023 underscored these risks, highlighting the difficulties of mobilising capital and sustaining partnerships in India's policy environment. While Foxconn has since partnered with HCL on a chip-testing facility, the episode reflects the fragility of India's manufacturing push.

The Foxconn episode is not isolated. Reports over the past year have documented delays in the shipment of specialised manufacturing equipment from Chinese ports, restrictions on Chinese employees travelling to India, and even the blocking of large-scale tunnel boring machines destined for Indian infrastructure projects. Together, these measures form part of a broader pattern in which China selectively interrupts flows of labour, technology, and machinery across borders. The tactics are rarely formalised through policy announcements; instead, they manifest as “silent sanctions” in the form of unexplained customs delays, arbitrary export licence denials, and abrupt withdrawals of technical personnel. This strategic ambiguity provides Beijing with plausible deniability, while the cumulative effect on India’s industrial ecosystem can be profound.

Nowhere is this dynamic more evident than in the rare earth magnet sector. On April 4, 2025, China's Ministry of Commerce imposed new licensing requirements on seven rare earth elements and the magnets derived from them — materials indispensable for electric vehicles, wind turbines, and advanced electronics, all sectors central to India's industrial policy. The disruption placed leading manufacturers such as Tata Motors, Maruti Suzuki, and Hero MotoCorp under severe strain, with some electric vehicle producers reportedly just weeks away from suspending production by mid-2025. Beyond withholding supplies, Chinese authorities reportedly required end-user certificates and sensitive commercial documentation from Indian buyers as a precondition for export clearance, heightening fears of long-term technological vulnerability. Such practices not only compromise corporate confidentiality but also heighten fears of long-term technological vulnerability.

The standoff eased in August 2025, when China lifted its export curbs on rare earth magnets — along with restrictions on fertilizers and tunnel boring machines — following a visit by Chinese Foreign Minister Wang Yi, who assured External Affairs Minister S. Jaishankar that India's needs would be addressed. The episode nonetheless exposed how quickly Beijing can constrain flows of a critical input, and India's underlying dependence remains largely unchanged even after the curbs were relaxed.

These restrictions on rare earths and semiconductors must be viewed against a broader geopolitical backdrop. Since 2020, India has adopted an assertive stance toward Chinese technology, banning more than 50 Chinese mobile applications, including TikTok, and tightening scrutiny over fintech platforms linked to Chinese investors. Beijing’s countermeasures, however, illustrate the asymmetric dependence that persists in advanced manufacturing. While Apple has diversified its supply chains through a “China plus one” strategy, India’s rapid scaling remains contingent on access to Chinese talent, equipment, and upstream components — the very levers that Beijing is now constraining.

In effect, China has refined export denial into a potent tool of economic statecraft. Its objective is not to provoke overt confrontation but to gradually erode India’s capacity to scale in critical industries, thereby limiting its emergence as a credible alternative manufacturing hub. For India, these challenges expose the urgency of building resilient supply chains, accelerating domestic capacity in semiconductors and critical minerals, and deepening partnerships with trusted global actors.

India new policy moves

India’s ambition to position itself as a central node in global manufacturing faces an increasingly complex geopolitical and economic landscape, with China using export controls, talent restrictions, and regulatory barriers as tools of economic statecraft. The “Make in India” initiative, launched in 2014, aimed to raise manufacturing’s share of GDP from 15% to 25% by 2025. A decade on, results remain underwhelming: while electronics exports have grown, manufacturing's share of GDP has in fact declined to around 13% by 2025 (from roughly 15–17% a decade earlier), underscoring the persistence of structural barriers and continued reliance on Chinese inputs — albeit shifting from downstream finished goods to upstream intermediate components.

The Production Linked Incentive (PLI) scheme, introduced during Prime Minister Modi’s second term with a budgetary outlay of ₹1.9 trillion (US$26 billion) across 14 strategic sectors, represents a more targeted intervention. Its outcomes, however, have been mixed. Significant gains are visible in select industries: semiconductor and defense facilities established in Gujarat and Assam through U.S. and Taiwanese partnerships, a 60% import substitution in critical telecommunications components, and reduced dependence on Chinese photovoltaic imports, with PV cell reliance falling from over 90% to 56% by 2025. Yet the scheme has not delivered a decisive structural transformation. Bottlenecks in logistics, regulatory predictability, and workforce skilling continue to inhibit India’s ability to replicate China’s scale and efficiency.

On semiconductors, India has taken proactive steps to attract global investment and cultivate domestic capabilities. Tariff interventions since 2016 created the space for smartphone assembly, while the Production Linked Incentive (PLI) scheme has deepened India’s role in global electronics. Foreign direct investment surged to record levels, and companies such as Samsung, Pegatron, Wistron, and Tata Group have made significant commitments. Apple, once wholly dependent on China, now plans to produce a quarter of its iPhones in India by 2030. At the heart of this strategy lies the India Semiconductor Mission, launched in 2021, which provides subsidies covering up to 50 per cent of capital expenditure and has drawn investments from global players including Micron, AMD, Applied Materials, and Powerchip. The establishment of India’s first semiconductor fabrication plant in Dholera, alongside packaging and assembly units in Assam and Gujarat, represents a historic step in reshaping India’s technological base.

Rare earth magnets present a parallel challenge and opportunity. With China controlling over 90 per cent of global processing capacity, recent export restrictions have disrupted supply chains for electric vehicles, renewable energy, and defence systems worldwide. India, with over seven million tonnes of rare earth oxide reserves, remains underdeveloped in commercial production. The government has since moved to reduce this exposure. In November 2025, the Union Cabinet approved a ₹7,280 crore (roughly $870 million) Scheme to Promote Manufacturing of Sintered Rare Earth Permanent Magnets, comprising ₹6,450 crore in sales-linked incentives over five years and a ₹750 crore capital subsidy, aimed at building 6,000 metric tonnes per annum of integrated domestic magnet manufacturing capacity across five selected facilities over seven years. Facilities like CREL's newly commissioned permanent magnet plant in Visakhapatnam mark early signs of progress, while state-owned Khanij Bidesh India Ltd. pursues overseas mining partnerships to secure raw material access.

Challenges

Yet significant hurdles remain. India’s rare earth industry continues to be constrained by regulatory and structural bottlenecks. Monazite extraction falls under the Atomic Energy Act because of uranium and thorium content, effectively excluding private participation. In the absence of subsidies, magnet manufacturing remains commercially unviable: Indian Rare Earths Ltd. is the sole supplier of oxides, and project returns remain negative. The technical complexity and environmental sensitivity of heavy rare earth separation further compound these challenges. The net result is strategic vulnerability. Even as demand from electric mobility, renewable energy, and defence sectors accelerates, India remains acutely exposed to China’s coercive export denials.

Globally, supply chain fragmentation has only deepened. U.S. tariffs and export controls on China have intensified competition among alternative hubs, with Vietnam, Thailand, and Malaysia emerging as quicker beneficiaries than India. Their competitive labour costs, streamlined tax regimes, and network of trade agreements have enabled them to attract investment flows that India, despite its advantages, has only partially captured. This divergence underlines the urgency for India to address its high logistical costs, regulatory rigidity, and labour market informality if it is to compete credibly as a manufacturing destination.

The contrast with Vietnam is particularly instructive. Both economies offer low labour costs, yet Vietnam has pulled decisively ahead in electronics specifically: Vietnam's electronics exports alone reached roughly $109 billion in 2023 (rising to $126.5 billion in 2024), while India's total electronics exports were closer to $28 billion in 2023, climbing toward the mid-$30 billions by FY2024–25. Analysts note that Vietnam's established strengths in electronics production give it a head start in sectors where India is only beginning to scale.

Underlying the problem is the stagnation of India's manufacturing sector. Its share of GDP has drifted lower over the past decade, from roughly 17% in the mid-2010s to around 13% today, while exports as a share of GDP have slipped from 25.2 percent in 2014 to 22.7 percent in 2024. In electronics, Vietnam has left India far behind. The two exported similar values in 2010, but by 2020 Vietnam’s exports were nine times greater. Today, India’s share of high-tech exports is just 12 percent of its manufacturing output—compared to 23 percent in China, 22 percent in Israel, and 39 percent in Vietnam. Protectionist policies compound this weakness. High import duties and localization requirements keep costs elevated and block manufacturers from accessing intermediate inputs at globally competitive prices. A recent study by the Indian Council for Research on International Economic Relations urged the government to roll back such localization policies and focus instead on scaling exports as the pathway to domestic value addition.

Import duties remain a particular drag. India’s 10 percent tariff on information and communication technology products stands well above Vietnam’s 5 percent average. While these tariffs were initially designed to protect domestic producers, they have instead deterred investment. The government has begun lowering select duties—for instance, reducing taxes on certain phone components from 15 to 10 percent in January—but the process is piecemeal. For now, Vietnam retains the upper hand, particularly in electronics, where its scale, ecosystem depth, and access to U.S. markets position it as India’s closest competitor.

Finally, persistent concerns over bureaucratic hurdles and financial instability continue to weigh on investor confidence. The collapse of the $19.5 billion Foxconn-Vedanta semiconductor venture in Gujarat underscored these risks, highlighting the difficulties of mobilising capital and sustaining partnerships in India’s policy environment. While Foxconn has since partnered with HCL on a chip-testing facility, the episode reflects the fragility of India’s manufacturing push.

The Way Forward

Still, India is not without momentum. Global technology majors are steadily embedding supply chain nodes within the country. Apple has mandated that suppliers source batteries from Indian factories for the upcoming iPhone 16, while Google is preparing to launch Pixel production in India this year. These moves, building on Apple’s gradual diversification strategy since 2016, reflect a cautious but growing confidence in India’s ability to absorb high-value manufacturing. Yet, such gains remain incremental when measured against the scale of India’s ambitions and the entrenched dominance China maintains over advanced manufacturing ecosystems.

For India to capitalize on this moment, policy must move beyond symbolic wins and aim at structural resilience. Strengthening domestic capacities in electronics and semiconductor ecosystems is essential, not merely by incentivizing assembly, but by nurturing the entire value chain — from raw materials to precision components and advanced research. The recent Chinese restrictions on rare earth magnet exports underscore the urgency of securing critical mineral supply chains. India will need to establish forward-looking agreements with resource-rich partners such as Australia, Africa, and Latin America while simultaneously investing in domestic exploration and refining capabilities. Without such parallel investments, India risks reproducing the very vulnerabilities it seeks to escape.

At the same time, the shifting global trade environment demands that India deepen its strategic integration with like-minded economies. Trade and technology partnerships with the United States, Japan, and the European Union can offer India both market access and insulation against coercive disruptions. Frameworks like the Quad and the Indo-Pacific Economic Framework must be leveraged more deliberately to ensure that India anchors itself within alternative production networks rather than standing alone in a contest with China’s scale. Equally important is South-South collaboration: building regional value chains with Bangladesh, Vietnam, and Sri Lanka can create distributed manufacturing capacity across South Asia, amplifying resilience while reducing dependence on any single node.

To sustain investor confidence, India must also address domestic constraints that risk slowing momentum. Streamlined regulatory regimes, predictable taxation, and stronger intellectual property protections are no longer optional but prerequisites for attracting sustained high-value investments. Building robust logistics and port infrastructure, coupled with a skilled workforce pipeline attuned to advanced manufacturing, will determine whether India can genuinely position itself as a credible alternative to China or remain a secondary assembly hub.

These imperatives acquire sharper significance against the backdrop of shifting political dynamics. Even as India and China undertake tentative confidence-building measures, such as the resumption of the Kailash Mansarovar Yatra after six years, Beijing’s resort to economic coercion remains a reminder that competitive interdependence will persist. India’s best safeguard, therefore, lies not in symbolic gestures but in embedding itself within diversified, secure, and innovation-driven manufacturing networks that can withstand the pressures of strategic rivalry.

• Aashnaa Mehta

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