China’s manufacturing tale is no longer just about cheap labour or volume production—it is an industrial transformation, driven by a concoction of scale, innovation, decentralisation and government coordination, with the aim of China becoming a world leader in high-tech, value-added manufacturing. With its sights on industries such as artificial intelligence (AI), electric vehicles (EVs), semiconductors, aerospace and green energy, China is remoulding not just its industrial foundation but that of the entire world manufacturing base. For India, China’s trajectory holds rich lessons.
India would do well to focus on three aspects from the China example with the most impact—concerted industrial policies targeted at emerging technologies, a sense of urgency borne out of creative insecurity and empowering local governments. While catching up in traditional industries might take time, India can look at leapfrogging the world in emerging technologies. Policies have to be adapted to Indian contexts, without resorting to blind copying or getting stuck in a follower’s dilemma, keeping in mind that context always has multiple domestic and international dimensions.
Concerted Policy Decisions
China’s manufacturing ascendancy is not coincidental but the culmination of dedicated policy decisions, enormous investments and an acceptance of inefficiencies such as overcapacity in order to advance long-term strategic objectives. Overcapacity in the steel and solar panel sectors is usually misinterpreted as market failure. In fact, it mirrors a deliberate strategy to promote competition, preserve jobs and create world leadership—even when it results in short-term economic inefficiencies and tensions abroad. The outcome? Chinese firms have emerged as cost leaders across everything from solar panels to phones, compelling global rivals to innovate quickly or get out of business altogether.
Indian policymakers would benefit if they grasped this strategic patience. The recent production-linked incentive (PLI) scheme for electronics and pharmaceuticals is a step in this direction, but it is a far cry from what China has achieved through an integrated approach. China’s industrial policy comprises not only subsidies but also technology acquisition in the form of joint ventures, state-led supply chain coordination and heavy investments in skill augmentation. The case of the semiconductor sector is the best example of investing in long-term gains over short-term returns: China has spent more than $40-50 billion on local chip manufacturing in recent times, with an entire ecosystem developed from raw materials to finished goods.
Creative Insecurity
The US–China trade war, in a clear case of creative insecurity, hastened a critical change in China’s manufacturing plan. Instead of pulling back, Beijing doubled down on autonomy, particularly in key technologies, using not only tariffs but also technology buying, joint ventures and state coordination to protect supply chains. Perhaps most interesting is China’s shift from scale to innovation, particularly in AI and semiconductors that has pushed China to the leading edge of AI applications.
The AI industry provides India with an unprecedented chance to bypass conventional manufacturing limitations. Different from steel or cars, AI production is predominantly knowledge-intensive instead of capital-intensive, particularly with expenses set to decrease due to recent breakthroughs in terms of hardware efficiency. China’s advancement in AI has been tremendous but has also been hampered by increasing limits on cross-border cooperation and data exchange. India’s democratic systems, English-language edge and current information technology (IT) infrastructure give natural strengths in AI development that could be replicate anywhere in the world but China.