CHINA’S EXPORT CONTROL: IMPACT ON INDIA

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Picture Courtesy:  THE DIPLOMAT

Context

China's increasing export controls, aimed at national security, foreign policy, and economic reasons, pose a threat to India, whose heavily reliant economy could be affected.

Evolution of China's Export Control Regime 

Early Focus (Pre-2010): Initially controlled nuclear weapons and missile technologies. 

Weaponizing Trade (2010): Used trade for strategic goals, an informal ban on rare earth exports to Japan during a dispute. 

Formalization (2019-2020): The Export Control Law (2020) covers dual-use items (civilian and military uses) for national security.  

Expanding Scope (2023-2024): China increased restrictions on critical minerals like gallium, germanium, graphite, and antimony. 

• It added technologies for rare earth extraction and EV batteries to controlled lists. 

Stricter Implementation (2025): New regulations demand strict checks on who the items are going to (end-users) and what they will use them for (end-uses).

What are the Impacts of China's Export Controls?

Global impact

Supply Chain Disruptions: China controls 60% of global critical minerals production and 85% of rare earth processing.

• China leads in refining various minerals, including 68% of nickel, 40% of copper, 59% of lithium, and 73% of cobalt.
• Recent curbs on items like gallium, germanium, graphite, rare earths, and EV battery technologies disrupted global flows.

Economic Impact: Restrictions create uncertainty and slow economic growth globally. 

• Production slowdowns in sectors like semiconductors, electronics, and automotive.
• Supply chain disruptions, leading to higher production costs and delayed deliveries.
• Increased operational costs due to reliance on expensive suppliers from other regions.

Technological Competition: China uses controls to maintain its tech leadership and slow rivals' progress. 

Geopolitical Friction: United countries like the US, Europe, India, Japan, and Australia to reduce dependence on Chinese markets and diversify supply chains. 

Impact on India

Deepening Trade Deficit: India’s trade deficit with China, reached nearly $100 billion in FY 2024-25. 

Supply Chain Vulnerability: India depends heavily on China for critical imports, making it vulnerable to disruptions. India's dependence.

• >75% for electronic components.
• >80% for laptops, solar panels, antibiotics, and EV batteries.
• India is 100% import-dependent for 10 critical minerals and relies over 40% on China for 6 critical minerals (e.g., bismuth, lithium, silicon). 

Disruption of Key Indian Industries:

• Electronics & Mobile Manufacturing: China's informal restrictions (e.g., stopping capital equipment shipments for iPhone manufacturing in India, recalling Chinese engineers from Foxconn's Chennai plant in July 2025) disrupt India's $32 billion smartphone export target for FY26.  
• Electric Vehicles (EVs): Controls on lithium and battery technology hinder India's EV market growth, challenge renewable energy goals.
• Solar & Defence: Restrictions on minerals like gallium, germanium, graphite, and rare earths impact solar panel production and defense technologies.
• Agrochemicals & Infrastructure: Halt on fertilizer shipments and delays in Tunnel Boring Machines (TBMs) affect agriculture and infrastructure projects.

Increased Costs and Delays: Rerouting imports adds 10-15% to costs and extends delivery times. 

National Security: Dependence on a geopolitical rival for critical inputs raises national security concerns and hinders India's goal of technological self-reliance. 

How has the global community and India responded to China's export controls?

Global community response

• Diplomatic Pressure & Negotiations: Major economies like the US, EU, and Japan engage with China through diplomacy and trade talks.  
• Diversification of Supply Chains: Nations are seeking alternative sources for critical minerals and components, under China+1 strategy. 
• Strengthening bilateral and multilateral partnerships with resource-rich countries to secure long-term supply agreements.
• International Partnerships: Countries are forming alliances to secure critical mineral supply chains.
• Minerals Security Partnership (MSP): This US-led group of 14 countries, including India, aims to strengthen critical mineral supply chains.
• National Self-Reliance Initiatives: Countries are launching domestic programs to boost local exploration, mining, and processing of critical minerals. 
• Increased Scrutiny & Counter-Measures: Some countries are imposing their own export controls (e.g., Dutch and Japanese restrictions on semiconductor equipment exports to China).

India's response

• Boosting Domestic Production:
• Atmanirbhar Bharat to reduce import dependence. 
• Production Linked Incentive (PLI) Schemes incentivize domestic manufacturing across 14 key sectors. 
• National Critical Minerals Mission (NCMM) launched in 2025 with ₹34,300 crore combined funding (government + PSU), for self-reliance in critical minerals by 2035. 
• The Union Budget 2025 removed import duties on critical mobile phone components to boost local production. 
• Diversifying Supply Chains:
• International Partnerships: Australia (Australia-India Critical Minerals Investment Partnership) for minerals like lithium and cobalt. India joined the Quad Critical Minerals Initiative.
• KABIL: Khanij Bidesh India Ltd. (KABIL) seeks overseas mineral assets.
• Strategic Measures:
• R&D Investment: Boost research and development (R&D) for extracting, processing, and recycling critical minerals.
• Stockpiling: Build strategic reserves of critical minerals to manage supply shocks.
• Trade Diplomacy: India engages in talks with China, seeking predictability in trade flows. 

What is the Way Forward for India to Build Resilience and Strategic Autonomy?

• Expand and Optimize PLI Schemes to more sectors and ensure efficient implementation, attracting both domestic and foreign investment.
• The electronics manufacturing sector has seen success under PLI, becoming the world's second-largest mobile phone manufacturer.
• Boost R&D and Technology Adoption, especially in high-tech industries and critical components like semiconductors.
• Providing affordable credit, skill development, and market access for MSMEs, especially in sectors like textiles, apparel, and toys, where local production can replace a Chinese imports.
• Expedite negotiations for Free Trade Agreements (FTAs) with regions like the European Union and ASEAN to expand market access.
• Explore Alternative Import Sources for critical imports like Active Pharmaceutical Ingredients (APIs), electronics, and machinery from countries like Vietnam, South Korea, Japan, and Taiwan.

Source: THE DIPLOMAT