China, India, and the race to EVs

As PM Modi came back to power for the third time, the issue dominating the Chinese media or social media space has been whether "Modinomics 3.0" can deliver on what it has promised, that is to double India's GDP in the coming years.

Before the election, the Modi government had promised to implement a series of reform measures during his third term to build India into a global manufacturing centre and an alternative to the Chinese market for multinational companies. Chinese analysts wonder if Modi be able to realise this ambitious plan now? Many believe that being a coalition government, he might have to prioritise welfare measures, and slowdown the pace of reforms in areas like land, labour, and agriculture, thereby delaying progress in Indian manufacturing.

Before the election, the Modi government had promised to implement a series of reform measures during his third term to build India into a global manufacturing centre and an alternative to the Chinese market for multinational companies.

Currently, India's share of global manufacturing is less than 3 percent, while China's share is around 24 percent, about eight times that of India. Why then does China care so much about “Make in India”? Chinese scholar Lin Minwang, deputy director of the Center for South Asian Studies at Fudan University, in one of his latest pieces, provides an important explanation. He posits that the gap in economic strength between China and India that had widened significantly between 2010 and 2014 has currently been showing new trends, where although the gap in economic size between the two countries is still huge, the momentum of the continued widening of the gap in economic strength between the two countries has somewhat weakened in the past two years. He argues that geopolitical factors such as de-coupling/de-risking policies of certain countries have played an important role in this development, by enhancing the status and popularity of the Indian market among various multinational companies. He highlighted the risk to China’s manufacturing industry that this new development poses and urged Chinese policymakers to pay greater attention towards Modi 3.0’s economic and industrial policies.

In other words, at the centre of Chinese concern over “Make in India” is a perceived alignment in interest among various nations amidst the current geopolitical churn, particularly the United States (US) and India in weakening China's position in the global supply chain. It is argued that since 2018, the United States has tried various means like trade wars, technology wars, and chip wars to contain China’s rise but has met with limited success. In the next five years, which is critical in determining the direction of China-US competition, the US might be tempted to use India, a country with a population base same as that of China, a vast market, a fledging economy with great potential in science and technology, as a “trump card” against China, in the field of trade and economics.  

In other words, at the centre of Chinese concern over “Make in India” is a perceived alignment in interest among various nations amidst the current geopolitical churn, particularly the United States (US) and India in weakening China's position in the global supply chain.

On the other hand, China assesses that India is well aware of the strategic opportunity that the Sino-US game presents and is keen to obtain maximum strategic returns from the situation. Its withdrawal from RCEP attempts to reduce dependence on China under the framework of the "Make in India" policy and putting additional barriers for Chinese companies and investment in India indicates that India aims to “decouple” from the Chinese industrial chain system and “recouple” with the US and European systems, particularly in strategic industries or the industries of the future.

China’s domestic concerns over Modinomics 3.0, found expression in China’s new ambassador to India Xu Feihong’s recent social media interventions. Weeks after joining as China’s new ambassador to India, when all eyes were fixed on the Indian election results, he tweeted about the severe heat waves in India, and the need for India’s green transition. He emphasised China’s expertise in the field and urged the new government in New Delhi to work with China in tackling climate change and the heat wave crisis. In yet another tweet, he dropped a hint on the area where China would want the new government in New Delhi to cooperate, that is new energy vehicles, one of China’s “new three” industries, supposedly the key driving force for the Chinese economy going forward. The ambassador, in his tweet, asked why there were so many Japanese, Korean, American, and German cars on Delhi streets, and, why only China's export of new energy vehicles is labelled as overcapacity.

Chinese ambassador’s strong pitch for Chinese electric vehicles needs to be understood from a proper perspective. As is known, China has of late emerged as a leader in the new energy vehicle industry chain, surpassing the traditional Western nations as well as Japan; However, at the same time, it is also facing serious challenges, like major push-back from key export markets like the EU and the US as well as domestic market saturation, or insufficient demand in Chinese market. 

Historically, Chinese electronics products, especially those that have failed to enter the US or European markets, found a ready market in “price-sensitive India”. However, Chinese analysts note that India too might have learnt its lesson from how Chinese smartphone makers destroyed its nascent smartphone manufacturing industry, and made better preparations, in terms of enhancing restrictions and scrutiny on Chinese investments. It has twice rejected major investments from Chinese auto companies like Great Wall Motors and BYD. And, where it has allowed Chinese investment, it has ensured that an Indian company has a controlling stake as seen in the case of SAIC- MG India. Latest news reports highlight that going forward, the government may allow more joint ventures between Chinese and Indian companies in the electronics and automobile space, with the condition that the Indian partner has a majority shareholding. Not to mention, India has also introduced its new electric vehicle policy, promising tax relief to electric vehicle manufacturers that choose to invest in India.

Now, the difficulties faced by Chinese new energy vehicle enterprises in various global markets has triggered several rounds of price wars in China’s domestic auto market in the past few months. Chinese observers have been concerned that excessive competition within the domestic market and a sharp drop in prices may eventually lead to the stifling of innovation for truly innovative Chinese enterprises in the new energy space. Many believe that Chinese automakers now have little option but to enter foreign markets, through unfavourable joint ventures or technology sharing.

Overall, the inference drawn in Beijing is that this is a coordinated attack against China to curb its lead in the ongoing Fourth Industrial Revolution. “The United States is trying to put China's tech industry in chokehold; Europe wants to dominate the Chinese auto market for another 50 years; India wants to take advantage of the situation and emerge as a new global electric vehicle manufacturing centre (riding on the West's coattails, bypassing China)”, read an article in the Chinese internet. It condemned these countries for seeking to ruin “China’s 70 years of hard work”—a sentiment currently dominating China’s strategic circles. 

Overall, the inference drawn in Beijing is that this is a coordinated attack against China to curb its lead in the ongoing Fourth Industrial Revolution.

It is important to note that in case of India, although of late there has been a surge in imports from China, many Chinese strategists see it as a temporary trend, caused by demands from certain market leading companies that have just moved to India. On the contrary, a long-term trend of relocation of industries (EVs as well as others) from China is seen as a foregone conclusion by a section of Chinese strategists. This is because: Firstly, many Chinese enterprises have already started moving their supply chains out of China due to various reasons like avoiding geopolitical risks, rising costs etc. They are particularly targeting markets like India with cost advantage, resource advantage, market advantage and which can also be used to sneak into the "reshoring/nearshore/friendshoring” system of the United States and other western nations. Secondly, on the other hand, those Chinese enterprises who are not actively seeking to enter India, are also being forced to relocate passively, under the pressure of leading companies, both multinational or Chinese, who have already relocated or planning to relocate to India.

Given the circumstances, multiple questions are doing rounds in Chinese strategic circles: how to effectively use the window period, before a local ecosystem develops in India, to gain a competitive advantage over the Indian rivals in the Indian market? How to avail current opportunities in the Indian market (including the rare window of its tax exemption policy for electric vehicles) to transform and upgrade Chinese electric vehicle industry chains, thereby widening the gap between “Made in India” and “Made in China” and rendering competition between the two futile?

To conclude, one can argue that even as the spotlight remains on the fierce military contest between China and India at the LAC, an equally fierce geoeconomic contest between the two countries is playing out in the background, that deserves greater attention. Going by the Chinese discourse, geo-economic calculations have been a key factor driving Chinese actions in the 2020 border conflict. Going forward, it will continue to impact China’s judgement at the LAC.

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Antara Ghosal Singh is a Fellow at the Observer Research Foundation.

• International Affairs
• China
• India
• Fourth Industrial Revolution
• India-China Relations
• Make in India
• Modinomics

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