Indian importers outwit China via Dubai route

New Delhi: Made in China, imported from Dubai. That’s the new mantra for Indian importers after China brought in export restrictions on certain machinery and minerals such as gallium and germanium that are critical to industries like solar power, semiconductors and metro rail, among others.

These products, of both Chinese and foreign manufacture, are reaching India's shores through Dubai’s Jebel Ali port, three people aware of the development said.

“While there are problems with China imposing these overt and covert restrictions, our importers have found a fix. They are now rerouting shipments through foreign countries such as Dubai,” one of the three people cited above said on condition of anonymity.

This is how it works. Traders registered in Dubai import or lease capital goods from China, which are then either sold to India or leased to Indian companies. This arrangement helps India bypass China's export restrictions and maintain its supply chain for critical machinery and equipment.

While the rerouting has become necessary to keep strategic projects running, it has also inflated project costs by up to 10%. Plus, with shipping delays extending the usual 15-day import cycle to as much as three months, costs related to logistics, financing, and warehousing have also shot up, straining project budgets.

The second person cited above said that Chinese exporters often demand upfront payments, citing limited transparency on end-use, which drives up project expenses. “Also, spare parts frequently sourced through intermediaries contribute towards additional costs,” this person said, also requesting to not be named.

To be sure, in August 2023, China imposed strict controls on export of minerals like gallium and germanium to countries such as India, the US, Japan, and the Netherlands, among others. At the same time, China continues to supply these minerals to nations of its interest, like Russia and the UAE (United Arab Emirates), through a barter system.

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The export restrictions have the potential to severely impact India's renewable energy goals since China is the biggest supplier of these minerals globally. Germanium and Gallium are vital for India’s solar cell and module production capacity of 10 giga watt (GW) and 60 GW, respectively.

Then, last December, China imposed export restrictions on drilling and tunnel-boring machines (TBMs). TBMs are widely used in sectors like metro construction, high-speed rail, hydropower, and energy transition projects.

India’s commerce and industry minister Piyush Goyal had raised the issue of China blocking the sale of TBMs manufactured by Germany’s Herrenknecht to India with German vice chancellor and federal minister for economic affairs and climate action, Robert Habeck during his recent India visit.

According to people in the industry who spoke on condition of anonymity, Afcons Infrastructure Ltd, the flagship infrastructure company of Shapoorji Pallonji group, leased floating oil rigs machinery from a western country after Chinese suppliers refused to provide the needed equipment for an oil exploration project in Andaman and Nicobar Islands, thereby adding a substantial premium to operational costs.

Queries emailed to spokespersons for commerce ministry, Afcons, and the embassies of China and the UAE in New Delhi remained unanswered till press time.

Long-term fix needed

China’s refusal to provide these equipment and materials is being seen as a deliberate tactic to curb India’s economic growth. Experts say such tactics, though unwarranted, should be expected, but long-term solutions need to be explored, including developing local manufacturing.

“China is never interested in the orderly rise of India. They will always try to scuttle our key infrastructure projects, such as solar cells, semiconductors, capital goods, and machinery,” said Ram Singh, professor at Indian Institute of Foreign Trade (IIFT).

He added that the Indian government should reach out to German firms to manufacture such machines required for critical infrastructure projects under the Make in India initiative, “given that India is providing huge market access for these capital goods”.

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Others agreed. “India should encourage other countries to manufacture machinery and equipment essential for critical infrastructure development,” said Arun Kumar Garodia, chairman of Engineering Export Promotion Council (EEPC), a body under the commerce and industry ministry. “This approach would gradually support the growth of such facilities within India as well.”

Garodia pointed out that rerouting is risky and not a long-term solution. “Once machines are imported, there is also the challenge of securing spare parts for maintenance and repairs,” he said.

Deepak Pandey, managing director of GP Eco Solutions India Ltd, a solar inverter and energy storage solutions system manufacturing company, said rerouting through Dubai is a short-term fix and highlights the importance of building domestic manufacturing capabilities.

“China’s export restrictions expose India’s dependence on foreign suppliers for essential solar components, underscoring the need for stronger supply chain resilience,” he noted.

Growing imbalance

The development comes at a time when imports from China hugely outnumber India’s exports to that country. In FY24, data from the commerce ministry showed India imported goods worth $101.75 billion from China, primarily comprising raw materials and minerals. Exports to the eastern neighbour, meanwhile, totalled a sedate $16.67 billion in comparison.

China also became India’s largest trading partner in FY24, narrowly surpassing the US, according to Global Trade Research Initiative (GTRI) data. Trade between India and the US totalled $118.3 billion in the fiscal year (China $118.4 billion), after Washington had held the top trading partner position for India in both FY22 and FY23.

Ajay Srivastava, GTRI’s founder and a former Indian Trade Service officer, pointed out that India's trade deficit with China exceeded $387 billion over the past five years.

In FY24, India imported solar photovoltaic (PV) cells, panels, and modules valued at $1.14 billion in the first half of the fiscal year, from all countries combined. This marks a significant increase over the entire previous fiscal year’s imports of $943.53 million. China, which is the primary supplier, accounted for around $501.9 million of these imports in the April–September period, with other contributions coming from Vietnam and Hong Kong.

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With India making plans to develop its own solar equipment manufacturing capability, China has been reluctant to support with input materials. In April 2022, the Indian government announced a production-linked incentive (PLI) scheme for manufacture of high-efficiency solar modules.

Interestingly, China’s obstructionist tactics were also at play in G20 meetings, including reluctance to acknowledge the need for securing critical minerals, as reported by Mint earlier.

For instance, securing lithium supplies will play a major role in India’s green economy trajectory. With lithium being in short supply in India, there are concerns given that Chinese state-owned firms have already secured lithium and cobalt mine concessions. As China dominates lithium-ion cell manufacturing, India wants to avoid a repeat of events with solar equipment manufacturing.

To be sure, China has not yet brought in export restrictions for lithium, albeit but it is reluctant to supply the mineral to India and other western countries.

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