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China’s broader export denial strategy directly threatens India’s economy and national security and must be addressed by India using comprehensive strategies.

On 10 January 2025, reports emerged that China had barred Chinese employees from travelling to Foxconn’s iPhone factories in India, while those already stationed there were being recalled. Additionally, shipments of specialised manufacturing equipment for making iPhones bound for India were halted, with Chinese authorities refusing to approve their export. These restrictions on Chinese manpower and equipment exports were designed to hinder Apple’s plan to manufacture the latest iPhone 17 in India and launch it there in 2025. By disrupting the supply chain, China aims to pressure Apple to reconsider its gradual transfer of operations away from China, particularly to India. These actions reflect Beijing’s growing concern over New Delhi’s potential to emerge as a competitive manufacturing powerhouse for Western multinationals, offering a glimpse into China’s evolving export denial strategy against New Delhi. These actions pose a significant national security threat to India and its economy. Notably, China is pursuing this denial strategy amid an apparent rapprochement between the two states, highlighting its underlying malevolent intentions.

Shipments of specialised manufacturing equipment for making iPhones bound for India were halted, with Chinese authorities refusing to approve their export.

Apple’s iPhone

India has become a key production base for Apple in recent years, manufacturing 14 percent of the world’s iPhones, a share expected to rise to 25-40 percent in the coming years. Apple also produces iPads, airPods, and Apple watches in India. Between April and September 2024 alone, the company exported iPhones worth US$ 6 billion from the country. This increasing role in global consumer electronics production strengthens India’s position in the sector and reduces Apple’s dependence on China, ensuring supply chain stability.

China’s apprehensions are well-founded. At its peak production in 2017-18, Foxconn’s Zhengzhou factory employed 350,000 workers. Apple’s supply chain, comprising 150 Chinese suppliers and 259 factories, was the bedrock of employment across the Yangtze River Delta, Pearl River Delta and central and western China, supporting millions of grassroots workers. Yet by 2023, more than 200,000 Foxconn employees had been laid off, and several component suppliers in Zhengzhou either went bankrupt or moved to new sectors. In Apple’s long-term strategy, many of these jobs are gradually shifting to India.

Apple’s operations are helping to develop India’s smart technology industry. India already commands a strong IT foundation and a large engineering talent pool, making it well-positioned to benefit from Apple’s expanding operations. Foxconn alone has invested US$10 billion in India, employing 50 thousand workers. Moreover, the defect rate in India’s iPhone production has lowered to the Chinese level, fostering direct competition.

The upcoming iPhone 17 is expected to integrate machine learning and AI to enhance image analysis and voice recognition, offering users a superior experience and developers better opportunities for innovation.

The upcoming iPhone 17 is expected to integrate machine learning and AI to enhance image analysis and voice recognition, offering users a superior experience and developers better opportunities for innovation. China is particularly concerned about Apple’s shift in its New Product Introduction (NPI) policy, previously exclusive to China, and now happening in India for the iPhone 17. This transition could provide India’s software engineers a first-mover advantage, challenging China’s dominance in smart consumer technology.

Tunnel Boring Machines (TBM)

Chinese apprehensions extend beyond iPhones to the Tunnel Boring Machines sector, where similar restrictions are evident. On October 27, 2024, India’s commerce minister, Piyush Goyal, raised the issue of China’s export restrictions on German TBMs to India in a public meeting with Germany’s Deputy Chancellor, Robert Habeck. Herrenknecht AG, a leading German supplier, has played a crucial part in India’s infrastructure development, with 75 of its machines completing nearly 200 km of tunnels so far.

Until 2019, India relied significantly on Herrenknecht’s Chinese manufacturing units in Guangzhou and Shanghai for TBM imports. This dependence was especially critical for metro, roads and railway tunnels and strategically important mountain tunnels near the Line of Actual Control (LAC). After the Galwan Conflict and subsequent standoff, China gradually extended customs clearance times, restricting TBM exports to India. Beijing believes these machines are constructing mountain tunnels to facilitate troop movements along the LAC.

After the Galwan Conflict and subsequent standoff, China gradually extended customs clearance times, restricting TBM exports to India.

With India’s demand for TBMs set to rise due to upcoming high-speed rail and metro projects, dependence on China-controlled supply chains poses a serious risk. In a positive turn, Herrenknecht has decided to manufacture TBMs in Chennai for the Indian market, potentially proving to be a blessing in disguise.

Critical minerals

Another sector where China has restricted exports to India is critical minerals. Since 2023, China has imposed strategic curbs on the supply of germanium (Ge) and gallium (Ga) to the United States (US), India, and others. These minerals are essential for manufacturing semiconductors, solar panels and other strategic products. The restrictions are aimed at reinforcing the Chinese argument that world trade cannot function smoothly if its exports and access to advanced chips are snipped.

For India, Gallium is not a major concern, as it can be extracted from its large deposits of bauxite ores. However, New Delhi’s dependence on germanium imports is comprehensive. To circumvent Chinese restrictions, Indian traders are rerouting imports through Dubai. However, this increases cost often by 10-15 percent, extends delivery times and complicates procurement. Traders must provide upfront payments and bear additional costs for logistics, warehousing, and financing. The same rerouting is employed later to source spare parts, further driving up costs and making the process unsustainable in the long run.

The complexity

Before the Galwan Conflict, China had consistently employed non-tariff barriers (NTB) as a preferred tool to impede Indian imports, targeting multiple sectors, including pharmaceuticals, Basmati rice, and bovine meat. Cartelisation of Chinese traders to block Indian companies from entering the Chinese market remains another strategy. In recent years, China has come to view merely blocking Indian entry as insufficient. Rather, it has actively sought to prevent multinational and Chinese companies from relocating to India. This has led to increasingly visible and outright ban impositions against New Delhi.

China pursues three main objectives through these measures. First, it intends to prevent the migration of high-tech and consumer electronics industries from China to India, as the latter offers a comparable supply of cheap labour, skilled engineers, and government support. Furthermore, unemployment in China has reached alarming levels, compelling the government to stop publishing official numbers. High-tech industries provide substantial employment, contribute to value creation in China and are seen as vital to the economy. Their migration to India, particularly in the emerging sectors, is consequently considered a direct threat to China’s economic stability. The Chinese discourse on this migration is replete with arguments recommending measures to discourage it, especially when it involves competition from India in sunrise industries.

High-tech industries provide substantial employment, contribute to value creation in China and are seen as vital to the economy.

Second, following the Galwan Conflict, India implemented several economic measures against Chinese companies, including banning Chinese apps, restricting Chinese investment in local firms and investigating illegal activities of existing Chinese companies in the country. While a relative easing of tensions since October 2024 has raised Chinese hopes that India might lift these measures to reinvite China into its economy, these hopes have not been fulfilled. Bilateral negotiations for de-escalation have proceeded slowly, and major issues await clarity. As a result, these growing Chinese restrictions also aim to open leverage in negotiations against India on major issues.

Finally, China’s emerging export denial strategies are partly aimed at testing the waters in international trade. China’s economic sanctions have had limited impact in the past, and their rare earth export ban against Japan after a naval dispute in 2010 generated more international criticism than leverage. Unlike the US, China lacks a robust alliance of like-minded states to enforce its economic sanctions effectively. Consequently, selective denials and export restrictions are employed to assess India’s response mechanism and resilience.

Conclusion

China’s recent ban on manpower and equipment export to Foxconn’s factories in India, which produce iPhones, is designed to impede the growth of India’s high-tech consumer electronics industry. These measures, imposed amid a rapprochement between the two nations, underscore China’s tactical approach to managing tensions with India. A series of similar restrictive economic measures across various sectors in the last few years highlight China’s broader export denial strategy, directly threatening India’s economy and national security. India must evolve comprehensive strategies to mitigate Chinese leverage and safeguard its economy.

Atul Kumar (ORF)
21 February 2025

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