India-China Thaw Could Unlock Major New Manufacturing Investments

Oxford Economics suggests improving India-China relations could encourage significant manufacturing investment, reshaping supply chains and regional industrial competition.

A potential improvement in India-China relations could create opportunities for increased manufacturing investment and more stable cross-border commercial engagement, according to analysis from Oxford Economics examining how India could benefit from changing global supply-chain dynamics. The possibility is significant because India has sought to expand its manufacturing base and attract companies looking to diversify production beyond China. At the same time, China remains one of the world's largest manufacturing ecosystems, with deep supplier networks, extensive industrial capacity and expertise across numerous sectors. A thaw in bilateral relations could reduce some of the political and operational barriers that have complicated commercial engagement between the two countries. Greater stability could encourage companies to assess India and China not only as competitors but also as interconnected parts of wider Asian production networks. This could be particularly relevant for industries where companies require access to components, machinery, intermediate goods or specialised supply chains. Oxford Economics has separately highlighted India's potential to capitalise on shifts in global manufacturing linked to U.S.-China tensions and changes in multinational supply-chain strategies.

The potential economic impact would depend heavily on the nature of any bilateral thaw. Improved political relations could create greater confidence among investors, but companies still require predictable regulations, reliable infrastructure, competitive logistics and access to skilled labour. India has made substantial efforts to attract manufacturing through industrial policies, infrastructure development and production-linked incentives, while global companies have increasingly sought to diversify production across multiple locations. The "China plus one" strategy has created opportunities for India, Vietnam and other Asian economies, but China remains deeply embedded in global supply chains. A more stable India-China relationship could therefore benefit Indian manufacturers if it reduces disruptions in the import of components and capital equipment. Indian companies could also gain from more predictable access to Chinese machinery and intermediate goods. However, greater economic engagement would not necessarily mean reduced competition. Chinese manufacturers remain formidable competitors in sectors ranging from electronics and machinery to renewable-energy equipment and consumer products. Indian policymakers would need to balance the benefits of cheaper inputs and investment with concerns about domestic industrial competitiveness and strategic dependence.

The broader significance lies in how India positions itself within the evolving Asian manufacturing landscape. If relations between India and China improve while geopolitical competition between China and the United States remains elevated, multinational companies may continue diversifying production toward India while retaining China for its established industrial ecosystem. Such a model could allow India to capture a larger share of new investment without requiring companies to abandon China completely. Improved bilateral stability could also reduce the risk that political tensions disrupt trade at critical moments. However, manufacturing investment is ultimately driven by long-term commercial calculations rather than diplomacy alone. Investors will continue to evaluate India's infrastructure, labour productivity, taxation, policy consistency and export access. A thaw could improve the political conditions under which those decisions are made, but it cannot substitute for domestic reforms. For India, the opportunity is therefore potentially significant: a more stable relationship with China could support access to industrial inputs while allowing India to position itself as an increasingly important alternative manufacturing base. If combined with continued improvements in infrastructure and industrial competitiveness, improved bilateral relations could contribute to a substantial reshaping of Asian manufacturing flows over the coming decade.