China’s dominance of exports because of its manufacturing over-capacity and control of critical supply chains for energy transition are significant challenges for India, the Economic Survey 2024-25 released on Friday noted.
Beijing’s role as a “manufacturing colossus”, especially in the context of India’s limitations in producing critical goods at the scale and quality required for infrastructure needs, is significant for the country’s efforts to ramp up production of renewable energy, according to the survey.
India is currently engaged in the delicate task of normalising its relationship with China after a more than four-year-long military standoff on the Line of Actual Control (LAC) that took ties to their lowest point in six decades. Bilateral trade is currently worth close to $120 billion, with the balance totally skewed in China’s favour. Beijing has pushed for the revival of trade and investment ties suspended during the face-off, while New Delhi has taken a more cautious position.
The weak demand within China and absence of any significant policy stimulus to boost domestic consumption has meant that the country’s excess capacity has spilled over to external markets. “Chinese exports are thriving. China’s trade surplus in 2024 was nearly one trillion US dollars,” the survey said.
Referring to China’s pronounced dominance of supply chains and services in renewables, the survey said: “The single-source concentration risk in several product areas exposes India to potential supply chain disruptions, price fluctuations and currency risks. India’s task is cut out.”
China’s rise as a manufacturing powerhouse and its impact on aspirations of other nations, and the supply of minerals, materials, machinery and equipment needed for energy transition pose challenges, the survey emphasised. Besides, the need for critical minerals has risen with the share of renewables in energy consumption around the world, and China dominates the production or processing of these materials, it pointed out.
“Dependence on China-made goods to achieve [the energy] transition enhances the complexity of the challenge for India,” the survey said.
In a section titled “The elephant and the dragon in the room”, the survey noted long-held principles and practices in the global economy are being re-evaluated or losing their relevance, with China’s prominent role in global supply chains adding to this shift.
“China…has gained a strategic advantage leveraging its competitiveness and economic policy to access and control key resources recognised today as critical for global supply chains,” it said.
China’s rise as a manufacturing colossus has affected manufacturing of automobiles, especially EVs, mining and refining capacity for critical minerals such as copper, lithium, nickel, cobalt and graphite, and clean energy equipment. This rise disrupted long-term automobile majors in Germany and Japan, and China dominates global distribution of critical minerals and other resources, “creating potential dependencies for posterity”.
While warning that the “road to energy transition runs through China”, the survey said global solar photovoltaic cell (PV) manufacturing capacity has moved from Europe, Japan and the US to China, which invested more than $50 billion in new supply capacity, or 10 times more than Europe. China’s share of solar panels (polysilicon, ingots, wafers, cells and modules) exceeds 80% in all manufacturing stages. This level of geographical concentration in global supply chains “creates supply disruption risks”.
About 60% of global wind installed capacity is sourced from China, which also houses 80% of the world’s battery manufacturing capacity. In solar, China controls supply of primary materials, manufacturing, installed capacity and recycling capacity and produces 80% of the main components of PVs, while 70% of the world’s rare earth minerals are processed by Chinese companies.
The survey said India currently sources 75% of lithium-ion batteries from China and has “near negligible production capacity” for key components such as polysilicon, ingots and wafers. This is especially significant given India’s plans to mitigate road transport emissions, which account for 75% of emissions in the transportation sector, to achieve Net Zero goals by 2070.
Manufacturing an EV requires nearly six times more minerals to produce than a conventional car, and most of them are used in the battery. “The Ministry of Mines has analysed the 33 critical minerals vital to India’s economic security and found that 24 are currently at high risk of supply disruption. China commands a significant share of critical mineral processing and production globally,” the survey said.
China is also responsible for processing most of the global output of key commodities such as nickel (65%), cobalt (68%) and lithium (60%), while it contributes 63% of global mining and 90% of global processing of rare earth minerals.
“The lack of viable alternative battery technologies reinforces China’s dominant position in lithium-ion batteries,” the survey said, adding that leading EV manufacturers have noted an increasing proportion of Chinese imports in their total expenditure, reflecting a significant dependence on China.
India’s production linked incentive (PLI) schemes demonstrate the government’s awareness of the need to build domestic supply chains and future policies will have to “broaden their scope of coverage in a manner that adapts to the growing needs of the EV industry”. In the future, EV policies “must focus on de-risking supply chains by promoting a more self-reliant ecosystem powered by increased R&D in advanced battery technologies”, the survey said.
India must also establish technology transfer agreements with other countries seeking to diversify supply chains and partnerships with aspiring nations can help distribute the high costs of securing a comparative advantage in the global market, it said.
