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India's 40% export jump to China still depends on Chinese parts
India's exports to China rose 40% from April to August 2026, yet the factories behind them still depend on Chinese components, equipment and raw materials. A company that moves assembly to India keeps buying much of its parts supply from China.
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What happened
- Modi hosted Xi in New Delhi last month on Xi's first visit to India in seven years, and both pledged to repair ties damaged by the deadly 2020 Himalayan border clashes.
- Beijing's April 2025 export licensing of seven heavy rare-earth metals exposed how vulnerable India's automotive and defence industries are to Chinese supply.
- Foxconn withdrew its Chinese specialists from its Indian iPhone plants in 2025, showing how much advanced manufacturing there depends on foreign technical know-how.
- India has eased its rules on direct investment from China, so Chinese companies can now hold up to 10% of the shares in Indian businesses.
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Why it matters
- constraint India's main imports from China are production inputs, so a rising Indian export total cannot be taken as evidence of lower dependence on Chinese supply.
- exposure Indian auto and defence lines that use heavy rare earths are subject to Chinese export licensing, so their material supply depends on licences Beijing chooses to grant.
- decision Firms hoping Chinese component makers will set up beside their Indian lines have to wait on Indian-majority joint ventures, terms China has so far been slow to accept.
- constraint A relocated line has to replace its foreign technicians from a domestic pool the reports describe as short of skilled workers.
An export figure counts finished goods at the port, wherever their parts were made. Indian smartphone production shows how wide that gap can be. Local suppliers account for only 18-20% of it, according to Reuters as summarised by mezha.net [1]. The other 80-82% is imported [1]. A second mezha.net summary of the same report says Indian electronics output relies largely on Chinese components [2]. Smartphones are India's biggest export success [3]. They were also among the goods behind the April-to-August rise in shipments to China, along with industrial equipment, auto components and printed circuit boards [4].
The import ledger has the same shape. Electrical and electronic equipment, machinery and chemicals are the three largest categories India buys from China, and most of that is intermediate goods used in production [5]. India's deficit with China was $116bn in 2025 [7]. By August 2026 it had reached $91bn [8]. That is about 78% of the full 2025 figure [2], and the report says this year's total could beat the record [8].
For the 40% export figure to mean less reliance on China, the local share of inputs would have to climb with it. The report gives that share only as a current estimate [1]. For a supply-chain planner, a move to India changes where final assembly happens. On the smartphone figures, most of the parts still arrive from outside the country [1]. The newest export business ties India closer to Chinese supply. Demand for AI hardware in Northeast Asia is bringing Indian firms orders for individual components from Chinese technology companies, and the report notes that this also strengthens the role of Chinese production chains [9].
Scale is part of why substitution is slow. China produced 28% of global manufacturing value added in 2025 and India 3%, according to World Bank figures cited by Reuters [10]. That is a ratio of roughly nine to one [3]. Their shares of world goods exports were 16.3% and 1.7% [11]. India spent 0.64% of GDP on research and development in 2024, according to its latest economic survey, with weak private-sector investment one cause [12].
New Delhi's response is to bring Chinese capital in on its own terms. It has promised decisions within 60 days on investment proposals in five high-tech sectors, provided they are joint ventures with Indian majority ownership [13]. India offers a large market, young and relatively cheap labour, and incentives that include tax breaks, production-linked payments and capital-expenditure subsidies [14]. China is in no hurry to invest on those terms, mezha.net reports [15].
What to watch
- Whether the local-sourcing share of Indian smartphone production rises above the current 18-20% estimate as exports to China grow.
- Whether Chinese firms file Indian-majority joint-venture proposals in the five fast-tracked high-tech sectors, and whether India decides them within the promised 60 days.
- Whether India's 2026 trade deficit with China passes the 2025 record of $116bn.