PM Modi, Xi Jinping to Discuss India-China Trade Deficit, Investment Issues

Prime Minister Narendra Modi and Chinese President Xi Jinping, who are scheduled to meet here on Saturday evening, are expected to take up bilateral trade and investment issues, with a special focus on India’s large trade deficit with China. India's exports to China rose 36.62 per cent to $19.47 billion in 2025-26 from $14.25 billion a year earlier. However, imports increased 16.03 per cent to $131.63 billion from $113.46 billion.

Consequently, India's trade deficit with China shot up to $112.16 billion in 2025-26, from $99.21 billion in 2024-25. India's merchandise trade with China increased 18.31 per cent in 2025-26 to $151.10 billion. China has also overtaken the US as India's largest trading partner. However, India’s trade deficit has also expanded steadily over the past few years. It stood at $83.2 billion in 2023-24, $73.3 billion in 2022-23 and $44 billion in 2021-22, which raises the issue of working towards a more balanced and sustainable trade between the two countries.

However, the trade imbalance is not simply an issue of consumer goods flowing into India. A large proportion of India's imports from China consist of essential industrial inputs, components, and capital goods used by Indian manufacturers to produce goods and create jobs. Four key sectors -- electronics, machinery, computers, and organic chemicals -- account for roughly 66 per cent of these imports. China supplies roughly 43 per cent of India's electronics imports and 40 per cent of machinery and computer imports, making these core inputs vital to domestic manufacturing rather than discretionary consumer purchases, according to a GTRI report.

India also imports over 40 per cent of six key critical minerals from China, exposing major vulnerabilities in its renewable energy, electric vehicle (EV), and defence supply chains. In fact, any withholding of these exports to India by China results in supply chain disruptions. The GTRI report highlights that this structural imbalance leaves Indian clean energy, electronics, and pharmaceutical sectors exposed to supply chain disruptions or restrictions on critical raw materials. China, on its part, will be looking for an easing of investment rules from India to enable its companies to invest in the fast-growing Indian market.

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