A renewed wave of Chinese imports, driven by the country’s desire to move up the export value chain to high-tech sectors such as solar panels, electric vehicles, and semiconductors amid declining demand at home, is intensifying international trade tensions. The rapid influx of goods into global markets, dubbed ‘China Shock 2.0’, has led more than a dozen countries, including India, to impose a new wave of anti-subsidy measures, fearing a repeat of the job losses of previous years. since China joined the World Trade Organization (WTO).
In the early 2000s, when China’s entry into the WTO was the subject of intense debate throughout the West, the question was whether China would become “the next great capitalist tiger” or remain the “last great communist dragon in the world.” US President Bill Clinton at the time, supporting China’s entry into the WTO, said that economic integration would force China to pursue political reforms and that by joining the WTO, Beijing was committing not only to importing more American products but also to accepting “the most popular democracy.” values: economic freedom.”
In a speech given in March 2000, Clinton noted that China’s integration into the world trade system would mean that the Chinese government would no longer be “everybody’s employer, landlord, shopkeeper, and babysitter, all rolled into one.” In contrast, after China joined the WTO in December 2001, instead of a market economy, state-backed capitalism took root. The years following China’s entry into the WTO were known as the “China shock,” as China’s low-cost, labor-intensive goods flooded global markets, leading to job losses around the world.
The China shock not only disrupted Western markets but also adversely affected Indian manufacturing and trade. India’s imports from neighboring China grew at a faster pace than the rest of the world. Imports of goods from China increased from $10.87 billion in 2005-06 to $61.71 billion in 2015-16. This dependence has grown so much that, despite the Galwan conflict in June 2020, which caused several economic restrictions on Chinese businesses, imports from China exceeded a record of one hundred billion dollars in 2023-24.
A slowdown in domestic demand is strengthening the push for exports
Researchers believe that the unexpected increase in China’s exports is accompanied by a slowdown in China’s economy due to the ongoing housing crisis, fragile credit, and low consumer demand. Therefore, China is banking on the world to absorb the excess capacity it has built to fuel the growth of the world’s most populous country. The Asian Development Bank on Wednesday reiterated that “higher-than-forecast exports” and continued policy support for manufacturing were key drivers of China’s growth in the first half of 2024.
Meanwhile, the International Monetary Fund (IMF), in a blog post earlier this month, said China’s foreign exchange surplus, caused by industrial policy measures designed to boost exports and support economic growth amid weak domestic demand, could lead to a potential “China shock 2.0”. they fired workers and damaged industrial operations elsewhere. This is true for India, as imports from China have jumped nearly 60 percent from $70 billion in FY19 to $101 billion in FY24, according to official data.
Restricting India’s access to solar equipment
The Economic Survey 2023-24 warned that in response to India’s anti-dumping investigation by Chinese companies, China was quietly blocking India’s access to solar equipment. This assumes importance as the renewable energy sector is the fastest growing sector in the world, and price pressures from China are hampering India’s growth in this sector.
India has plans to achieve 500 GW of renewable energy by 2030 and has invested $4.5 billion to develop clean energy production but 80 percent of India’s solar cells and modules still come from China. This is because, according to the International Energy Agency, China dominates the entire solar energy production chain. China produces 85 percent of the world’s supply of solar cells, 88 percent of solar-grade polysilicon, and 97 percent of the silicon ingots and wafers that make up the core of solar cells.
Increase in steel imports from China to India
The global steel industry has been seeking government intervention to protect itself from Chinese steel imports. The Financial Times this week reported that European steelmakers have urged trade officials to deal with rising Chinese steel imports that have driven European prices below production costs. Indian steelmakers have also called on the government to impose tariffs on Chinese steel dumping, as profits from the industry erode.
While steel exports are slowing, steel imports from China have reached new highs. Iron and steel exports fell by about 19 percent year-on-year in August 2024 and 29.4 percent year-on-year in April-August 2024-25, according to official data. Reuters reported that India’s finished steel imports from China reached a seven-year high during the first five months of the current fiscal year. Meanwhile, India’s total finished steel imports hit a six-year high of 3.7 million metric tons between April and August.
China’s electronic dominance
Mobile phone shipments in India have grown over the past two years. Significant investment is coming from global technology majors such as Apple, which has ramped up production in India. However, India’s dependence on imports from China has not seen a significant change.
In FY24, India imported electronic components worth over $12 billion from China and $6 billion from Hong Kong, the two accounting for more than half of India’s total exports – suggesting that the country’s growth in electronics manufacturing may no longer translate into less reliance on Beijing. In addition, imports of electronic components stood at $34.4 billion, making it India’s fifth largest import, after crude, gold, petroleum products and coal, according to data from the Commerce Department.
‘China shock fueled right-wing populist movement’
An October 2022 Stanford research report on the China shock in 2020 said that the influx of Chinese products caused job losses in several communities in the US and Europe and that existing policies in the US failed to adequately prevent workers from mass layoff events such as the China trade shock. Such policy failures, the report said, fueled right-wing populist movements in the US and Europe. However, with Western sentiment against the influx of cheap Chinese products, India could benefit from investment under the ‘China Plus One’ strategy pursued by many multinational companies.