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• China is steering factories and capital away from India to limit its rise as a manufacturing rival.
• India struggles with internal hurdles while Vietnam and Mexico attract more of the China Plus One shift.
• China’s industrial diplomacy is changing global production networks with geopolitical motives.

China is quietly tailoring its global investment strategy to slow India’s rise as a manufacturing rival.

As companies move supply chains out of China, Beijing is channelling outbound investment to select countries, while deliberately steering it away from India.

China’s inbound foreign direct investment (FDI) has collapsed by 99% since 2021.

Yet rather than pulling back globally, Chinese companies are going outward, reshaping global production networks.

India, meanwhile, is facing unexpected headwinds in its bid to replace China as the world’s factory.

Is China reshaping globalization on its terms?

The numbers tell a clear story. Data from Rhodium Group shows that China’s inbound FDI fell to $4.5 billion in 2024, its lowest in more than three decades.

But Chinese outbound FDI is taking off in a new direction.

Once focused on acquiring assets in the US, Japan, and Europe, Chinese capital is now flowing into greenfield projects, such as factories, battery plants, and industrial parks, in countries like Hungary, Mexico, Morocco, and Brazil.

In Europe, Hungary has become China’s favourite destination, receiving a $7 billion investment from battery giant CATL and a new BYD EV factory.

Morocco has emerged as a surprising hub for Chinese EV supply chains, leveraging its trade deals with both the US and the EU.

China’s strategy is more than economic.

It is using what some analysts call “industrial diplomacy,” selectively rewarding nations with FDI based on geopolitical alignment.
 

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Source: Rhodium Group

According to reports by MERICS, Chinese automakers have been instructed to expand in countries opposing EU tariffs on Chinese EVs, while withholding investments from those supporting them.

Why is India left out?

Beijing’s strategy shifts dramatically when it comes to India.

Despite India’s population overtaking China’s and its economy growing at 6.5% last year, Chinese firms are holding back.

Behind the scenes, Beijing has discouraged companies like BYD and Foxconn from expanding further in India, fearing it could accelerate India’s climb up the value chain.

Chinese export controls have quietly restricted key industrial inputs such as solar equipment, EV components, and electronics machinery bound for India.

Tunnel boring machines and even Foxconn’s equipment shipments have reportedly been delayed at Chinese ports.

The motive appears clear: prevent India from repeating China’s own 1990s success story.

That was when Western manufacturers flocked to China, helping it become a global powerhouse.

China sees India as the only plausible challenger to its dominance in manufacturing scale and labour-intensive exports.

India’s internal bottlenecks

Yet China is not solely responsible for India’s struggles. Foreign investors cite India’s domestic hurdles as a significant factor.

High import tariffs on components, rigid labor laws, and regulatory red tape have slowed momentum.

While Apple has shifted iPhone production to India, with 15% of its devices now assembled there, the company still lags behind its goal of 25%.

Strikes at Indian factories and inconsistent state-level regulations have created friction for global executives used to Vietnam’s predictable, centralized environment.

Vietnam’s electronics sector is now valued at $126 billion.

That is three times the size of India’s, despite India being over ten times larger in population.

Vietnam’s deep integration with China’s supply chains also makes it a natural stop for manufacturers pulling out of China.

Is India missing the China Plus One wave?

The China Plus One strategy, which aims to diversify global manufacturing beyond China, has largely benefited Southeast Asian nations.

Mexico, Vietnam, and Indonesia have absorbed much of the production shift, leaving India playing catch-up.

FDI into India’s manufacturing sector has been tepid.

According to Japan’s Chamber of Commerce, only one out of every ten Japanese companies that explore India follow through on their investment plans.

Taiwanese semiconductor firms have mostly bypassed India after assessing operational hurdles.

At the same time, China’s outbound greenfield investment has surged, particularly in Latin America, Southeast Asia, and parts of Europe.

Beijing appears to be crafting a new industrial network that preserves China’s control over critical technologies while pushing lower-value production abroad, but away from India nonetheless.

Could India still break through?

India’s policymakers are aware of the challenges. In recent months, the government has offered fresh incentives for electronics and semiconductor manufacturers.

Prime Minister Narendra Modi has also sought to fast-track a trade deal with Washington to reduce tariffs and boost India’s role as a production hub.

But India’s decentralized governance model and fragmented infrastructure continue to hold it back.

Foreign investors are increasingly asking if India will seize this rare opportunity or let Vietnam and Mexico solidify their lead.

The risk for China is that economic necessity may eventually outweigh geopolitics.

Despite Beijing’s warnings, many Chinese firms still want access to India’s market.

As noted in a report by the Observer Research Foundation, Chinese companies face a dilemma: pull out of India and cede ground to Western rivals like Apple and Samsung, or stay and risk building up India’s capacity to eventually rival China.

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