The Awakening of the Dragon
In the dawn of the 21st century, a profound shift began to ripple across the global landscape. As China opened its doors to the world, the once-dormant dragon stirred from its slumber, unleashing a torrent of manufactured goods that would forever alter the fabric of economies far and wide.
This phenomenon, known as “China Shock” , refers to the significant economic impact that resulted when China rapidly increased its production and exports of goods to the global market, particularly after joining the World Trade Organization in 2001.
In simple terms, China Shock describes how China’s rise as a manufacturing powerhouse and its low quality exports affected jobs and economies around the world, often in negative ways.
China Shock 2.0 – “Beneath the dragon’s breath lies chaos”
Years passed, and the dragon fell silent again, but it was merely gathering strength. Now, as it awakens for China Shock 2.0, its breath is hotter and more intense. The dragon’s flames of innovation in technology and manufacturing threaten to reshape the world economic order once more.
Fast Forward to 2024.we are witnessing a déjà vu moment with a technological twist.This time, it’s not just about textiles or low-cost electronics; it’s about high-tech exports like solar equipment and electric vehicles.
So, what triggered the Chinese dragon to wake up from slumber and breathe fire ?
Trigger point : China’s weak domestic demand due to property crisis & poor consumer demand.
According to the International Monetary Fund (IMF) report,even though China’s share of global exports has increased substantially ,its domestic demand began to weaken in late 2021 following a large-scale property market correction and repeated lockdowns in 2022 that hurt consumer confidence.
Hence, China is banking on the rest of the world to absorb the excess capacity. The Asian Development Bank also pointed out that “higher exports than forecast” and continued policy support to manufacturing were key drivers of growth for China in the first half of 2024.
Impact of the Dragon Fire on the world & India
As Chinese factories begin to flood products in the market, many countries, both west and east alike, are facing challenges. This situation mirrors the original “China Shock” from the early 2000s, which caused job losses and trade imbalances worldwide. Back then, cheap Chinese goods, backed by low labour costs, overwhelmed global markets, and caused a decline in manufacturing jobs in many countries, including India.
Despite geopolitical tensions and efforts to reduce dependence on Chinese goods, India’s imports from China have continued to grow. In 2023-24.Key imports include electronic components, solar equipment, and finished steel.
- For India, the impact is already evident, with imports from China rising by nearly 60%—from $70 billion in FY19 to $101 billion in FY24, according to the Directorate General of Foreign Trade.
- This surge could further strain India’s manufacturing sector, trade balance and ultimately hurt India’s ambition to become a global power.
- Steel Industry Struggles with Chinese Influx : India’s iron and steel exports dropped nearly 19% year-on-year in August 2024 and 29.4% during April-August 2024-25.The surge in Chinese steel is eroding profits and threatening the stability of steel industries globally, particularly in Europe and India.
- Solar Sector Dominance: India remains heavily reliant on China for 80% of its solar cells and modules, impacting its renewable energy goals.
- Electronics: Though mobile phone manufacturing has increased, India’s dependency on China for electronics remains largely unchanged.
Measures to counter the Dragon
- Imposing Anti dumping duty and Anti – subsidy duty.
- Implementing Quality Control Check Orders to check imports of cheap items from China.
- Both western and eastern countries should converge to work together on the “China+1” strategy.
Nations must prepare, for the dragon’s resurgence promises both opportunity and peril, reminding everyone that in its fiery path, only the swift and clever will survive. The Indian Tiger on its part should look to make use of the “China Plus One” strategy, as many western countries and companies are looking to diversify their supply chains by investing in other countries, including India. This shift could benefit India by attracting more foreign investment and boosting local manufacturing. India’s large market, young workforce, and growing economy make it an attractive destination for companies seeking to reduce their reliance on China.