India's Exports to China Surge Nearly 40%, But Trade Deficit Keeps Widening

Indian exporters are finding unexpected traction in China, with shipments of manufactured goods rising almost 40% in the five months through August, even as the broader trade relationship between Asia's two biggest economies remains heavily skewed in Beijing's favour.

Government data reviewed by industry executives shows electronics and engineering goods leading the growth, with items such as printed circuit board assemblies, smartphones, display modules and telecom equipment among the biggest contributors. Electronics shipments alone rose more than 15% in the April-August period compared with a year earlier, building on a run that saw full-year exports to China roughly triple to around $3.18 billion in the fiscal year ended March.

AI-driven demand lifts electronics shipments

Industry executives say part of the surge is being driven indirectly by the global boom in artificial intelligence and data-centre construction, which has increased demand for high-end electronic components worldwide and, in turn, pushed some of that sourcing pressure onto Indian suppliers. "The surge in exports to China is partly driven by pressure on suppliers to meet the demand for high-end equipment required for AI-related products and as data centres proliferate," said Rajoo Goel, secretary general of the Electronic Industries Association of India, adding that this has encouraged more electronics exports out of India.

Beyond electronics, engineering exports to China rose about 21% in the April-August period from a year earlier, spanning machinery and parts, auto components and hand tools — evidence that the gains extend beyond any single product category.

Still a small slice of India's export basket

Despite the sharp percentage growth, China remains a relatively minor destination for Indian goods overall, accounting for roughly 4.4% of exports in the year ended March, up from just over 3% a year earlier. That compares with the United States, India's largest export market, which alone takes in almost a fifth of India's outbound shipments.

There is also a data puzzle at the heart of the numbers: Chinese customs figures do not show a comparable rise in printed circuit boards arriving from India, with much of the increase instead showing up under smartphones and other telecom products — a mismatch industry executives attribute to differences in how the two countries classify goods.

Trade imbalance keeps growing regardless

The improvement in exports has done little to dent India's structural trade deficit with China. India imported $131.6 billion worth of Chinese goods in the year ended March — nearly 17% of its total imports — dwarfing the value of what it sold to Beijing in return, since Chinese components remain deeply embedded in Indian manufacturing supply chains.

Even so, exporters and industry bodies see the recent momentum as an encouraging signal, especially given the political backdrop: India and China have been working to stabilise ties after a prolonged multi-decade low, while Washington's tariff policies are giving both governments an added incentive to deepen economic engagement with each other. "It shows that Indian manufacturing is beginning to win credibility in one of the world's most competitive global value chains," said Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association, adding that the challenge now is to sustain the momentum and expand further into components, sub-assemblies and finished products.

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