India’s China+1 Dilemma: It May Need China to Depend Less on China

India’s strategic calculus regarding Chinese investment has entered a nuanced phase, as evidenced by the recent approval of a smartphone joint venture between Dixon Technologies and the Indian arm of Vivo. The partnership, cleared on 8 July 2026 after a 19‑month review, allocates a 51 percent stake to Dixon and 49 percent to Vivo, illustrating the delicate balance the New Delhi government seeks between safeguarding security and fostering industrial capability. This development offers a concrete lens through which to examine the broader “China+1” dilemma that has preoccupied Indian policymakers, industry leaders, and think‑tank analysts since the inception of Press Note 3 in April 2020.

Historical Context of India’s China+1 Policy

The genesis of India’s China+1 posture can be traced to the security shock of the Galwan Valley clash in June 2020, when Indian and Chinese troops engaged in a deadly confrontation that claimed the lives of twenty Indian soldiers. In the aftermath, New Delhi instituted Press Note 3, mandating governmental approval for investments from nations sharing a land border with India. This regulatory tightening was complemented by a series of security‑driven measures, including the 2020 ban on Huawei’s 5G equipment and the prohibition of hundreds of Chinese mobile applications.

While these steps were intended to curtail strategic vulnerabilities, they also produced an unintended economic side‑effect: Chinese equity inflows into India plummeted from roughly $229 million in the 2018‑19 fiscal year to a mere $2.67 million in 2024‑25, according to interviewees cited in a 2025 East Asian Institute study. The sharp contraction underscores the trade‑off inherent in a policy that seeks to limit capital while remaining dependent on Chinese‑origin components and technology.

The Dixon‑Vivo Joint Venture: A Microcosm of Managed Dependence

The Dixon‑Vivo joint venture epitomises the “managed dependence” model that Indian authorities are attempting to cultivate. By granting a minority stake to a Chinese partner while retaining majority control, the arrangement aligns with the government’s March 2026 relaxation of investment‑screening rules, which now permits non‑controlling ownership of up to ten percent for firms from land‑border countries to proceed via an automatic route, provided they meet stipulated conditions. However, the Dixon‑Vivo deal exceeds this threshold, indicating that the government is willing to evaluate Chinese participation on a case‑by‑case basis, focusing on the tangible benefits to Indian capability.

Critically, the partnership’s impact on technology transfer remains uncertain. Although Indian majority ownership could, in principle, facilitate the diffusion of engineering know‑how and supplier development, the 51‑percent stake does not automatically guarantee substantive technology sharing. As one interviewee observed, “a 51 percent stake does not guarantee any meaningful transfer of technology,” highlighting the need for clear performance metrics and safeguards to ensure that the joint venture contributes to the broader goal of building a resilient domestic electronics ecosystem.

Supply‑Chain Realities: The Paradox of Reducing Dependence

India’s ambition to diversify away from China confronts a structural paradox: the country’s electronics manufacturing sector, while expanding rapidly in assembly capacity, continues to rely heavily on Chinese inputs for components, machinery, and raw materials. Executives surveyed in 2025 repeatedly noted that China’s competitive advantage lies in its mature, vertically integrated supply chain—a feature that remains underdeveloped in both Southeast Asia and India. One automotive executive articulated this reality, describing a “two‑supply‑chain” strategy that would see identical products sourced from both China and India, yet acknowledging the difficulty of replicating China’s supply‑chain depth domestically.

Consequently, short‑term efforts to increase Indian assembly volumes may paradoxically increase the volume of Chinese‑origin inputs. The phenomenon was illustrated by the July 2025 Bloomberg report on Foxconn’s Indian iPhone plant, where hundreds of Chinese engineers and technicians were recalled to China, underscoring the reliance on Chinese technical expertise even within ostensibly “indigenous” manufacturing sites. Executives expressed concerns about the fragility of such arrangements, fearing sudden supply interruptions and the potential exposure of proprietary designs to Chinese vendors.

Regulatory Adjustments and Their Implications

In response to the tension between security imperatives and industrial development, the Indian government introduced a calibrated relaxation of its investment‑screening framework in March 2026. Under the revised regime, proposals in designated manufacturing sectors—including electronic components and capital goods—must receive a decision within 60 days, and investors from land‑border nations may hold up to a ten‑percent non‑controlling stake without prior approval, provided they meet predefined conditions. Direct Chinese investments that exceed this threshold remain subject to case‑by‑case scrutiny.

This regulatory nuance reflects a strategic calculus: while security‑sensitive activities continue to warrant tight oversight, routine manufacturing investments are afforded greater predictability to attract foreign capital. The approach aligns with the broader policy recommendation that “security‑sensitive activities should stay under tight scrutiny, while ordinary manufacturing investment deserves clearer, more predictable rules.” By differentiating between strategic and non‑strategic domains, New Delhi hopes to preserve national security while mitigating the economic costs of over‑restriction.

Alternative Sources and the Quest for Diversification

Interviewees consistently emphasized that diversification should not be construed as an exclusive reliance on domestic production. Instead, they advocated for a multi‑pronged sourcing strategy that incorporates inputs from Japan, South Korea, Taiwan, Europe, and other advanced economies. The rationale is twofold: first, to reduce exposure to any single supplier or geopolitical bloc; second, to tap into established expertise in high‑value components that India may not yet be able to produce competitively.

In this context, the Dixon‑Vivo joint venture can be viewed as a transitional arrangement, intended to bridge the capability gap while India cultivates alternative supply channels. The broader policy thrust is to “be less exposed to disruption while building capability where India can actually compete,” a sentiment echoed by multiple executives who warned against the inefficiency of “shooting yourself twice over in your foot” by restricting Chinese capital yet continuing to import Chinese goods.

Strategic Implications for Indo‑Chinese Economic Relations

From the perspective of Chinese firms, India presents an attractive market characterized by a sizable domestic consumer base and a burgeoning manufacturing sector that can serve global customers. As multinational corporations disperse production beyond China, Chinese suppliers face a strategic choice: follow their clients to India or risk losing market share to rivals positioned in alternative low‑cost hubs. This dynamic creates a competitive pressure that may compel Chinese firms to engage with India under terms that are more favorable to New Delhi, especially if Indian regulators can articulate clear expectations regarding technology transfer, local supplier development, and market access.

Nevertheless, the alignment of corporate incentives with Beijing’s geopolitical objectives is not guaranteed. While Chinese companies may seek commercial footholds, the Indian government retains the prerogative to set the conditions of participation, thereby shaping the trajectory of bilateral industrial cooperation. The outcome will hinge on whether New Delhi can leverage its market size and policy flexibility to extract substantive capability gains without compromising strategic autonomy.

Future Trajectories: From Managed Dependence to Strategic Autonomy

Looking ahead, the evolution of India’s China+1 strategy will likely be measured by the extent to which joint ventures like Dixon‑Vivo generate indigenous capabilities—such as engineering talent, localized component supply chains, and proprietary design expertise—rather than merely replicating existing Chinese‑centric production models. The policy framework articulated in 2026 suggests a three‑tiered approach: maintain stringent oversight of security‑sensitive sectors; evaluate Chinese participation based on concrete contributions to Indian capability; and diversify sourcing to include a broader set of advanced‑technology partners.

If these criteria are systematically applied, India could transition from a state of “managed dependence” to one of “strategic autonomy,” wherein Chinese involvement serves as a catalyst for domestic capacity building rather than a perpetual source of vulnerability. The trajectory will depend on the government’s ability to enforce technology‑transfer commitments, nurture domestic supplier ecosystems, and sustain a predictable investment climate that encourages high‑value foreign participation without ceding critical control. In the interim, the Dixon‑Vivo joint venture stands as a bellwether, offering a tangible test case for how India can balance openness with security, and how it can convert external capital into internal strength in the rapidly evolving landscape of Northeast Asian geopolitics.

This article was produced with AI-assisted research and editorial support. Reporting is based on the source material cited below. Sources: The Diplomat; thediplomat.com; Global1.News (02 November 2026).

By Prof. David Park, Staff Writer