A Thaw with China Must Reset India’s Uneven Trade Equation

India’s economic engagement with China has rarely been on equal footing. India exports a relatively narrow set of goods to China, while imports from China keep expanding across sectors. Even after the Galwan clash in 2020 froze much of the political relationship, trade between the two countries kept growing, and the deficit continued to widen.

Now that diplomatic engagement is slowly resuming, the trade imbalance needs to be addressed.

An analysis of International Trade Centre data shows that India’s exports inched up from $16.3 billion in 2017 to $19.7 billion in 2025, a glacial pace over eight years. The CAGR for India’s exports to China between 2017 and 2024, at 1.3%, was well below the 4.6% growth in India’s overall exports during the same period.

There were a few exceptional years. During the pandemic, China’s demand for certain commodities and intermediate goods briefly lifted India’s exports. Shipments rose to $21 billion in 2020 and climbed further to $28 billion in 2021. That momentum, however, did not last. Exports have since slipped back, although April–December of 2025–26 did record a strong rebound of about 37%.

Smartphones have been one of the few bright spots. Exports in this category rose from $0.7 billion in 2024 to $2.2 billion in 2025, reflecting India’s growing role as a global smartphone manufacturing base.

However, other exports to China remained subdued. Products where India is globally competitive, such as machinery, automobiles and pharmaceuticals, continue to see limited access to Chinese markets despite strong demand there.

Divergent Trends
Department of Commerce data highlights a striking divergence between India’s exports to China and its overall export performance. In 2020–21, India’s exports to the world fell 7%, yet shipments to China rose 27%. A year later, the pattern reversed. India’s overall exports rebounded sharply by 45%, but exports to China barely moved.

In the following year, 2022-23, India’s exports to China dropped by 28%, even as exports to the rest of the world grew 7%. Similar divergences continued through 2023–24 and 2024–25.

Part of this volatility reflects swings in global commodity prices and the disruptions caused by the Ukraine war, which reshaped India’s processed fuel exports. But another factor is China’s buying behaviour itself. Chinese imports from India tend to spike when Beijing needs particular commodities like iron ore, organic chemicals, seafood or gems and jewellery, and then fade once domestic policies shift or prices change.

Iron ore purchases from India surged in 2021 and 2022 before easing again as Beijing tightened steel production and global prices moved. At times, such demand has helped cushion India’s exports when global markets were weak.

Imports from China, by contrast, have followed a much steadier upward trend. According to International Trade Centre data, Chinese exports to India doubled between 2017 and 2025, rising from $67.9 billion to $136 billion, an annual growth rate of roughly 8%.

Electronics dominate this expansion. Imports under HSC85, which include smartphones, integrated circuits and flat-panel display components, climbed from $43 billion to $52 billion, implying a CAGR of 10.4%. Machinery imports grew at 9.4%, plastics at 11.1%, and organic chemicals at 6.3%.

Government data shows that even after the Galwan crisis, imports from China continued rising slightly faster than India’s overall imports between 2021–22 and 2024–25. The trend persisted through April–December 2025–26.

The result is a persistent deficit. India’s trade deficit with China stood at $99 billion in 2024–25, accounting for about 35% of the country’s total trade deficit. Even so, China’s share of that deficit has declined from 47% in 2016–17 as India’s trade gaps with other partners have widened.

During the first three quarters of 2025–26, the deficit with China already stood at $82 billion. India now accounts for roughly 10% of China’s global trade surplus, which has expanded sharply in recent years.

India’s dependence on Chinese imports has also increased. In 2025, China accounted for 16.6% of India’s total imports, up from 14.1% in 2019.

Across most major import categories, China’s share has risen. In electrical machinery, India’s largest import segment, China’s share increased from about 39% to 43%. In organic chemicals, it rose from 40% to 44%. The sharpest gains in China’s share have come in plastics, where it rose from 19% to 30%, and in articles of iron and steel, which climbed from 34% to 43%. Only machinery and equipment saw China’s share edge down slightly.

As relations warm, China's footprint in India's trade profile will only grow. The two countries must move decisively to address the trade imbalance, a challenge that has been on the table for nearly two decades with little to show.

China's rising smartphone imports from India are a step forward, but they are far from sufficient. Beijing will need to lower trade barriers and open its supply chains more meaningfully to Indian firms.

On its part, India must continue pressing China to buy more of what it already sells competitively to the world. Two decades of talk on rebalancing this trade relationship have yielded little. The onus is now on both sides to move beyond intent.