China has escalated its trade conflict with India by requesting the World Trade Organization (WTO) to set up a dispute settlement panel. This request follows unsuccessful bilateral consultations concerning India’s incentive schemes for automobiles, batteries, and electric vehicles. In a formal communication, China stated that discussions held on November 25, 2025, and January 6, 2026, did not result in a resolution, leading to this latest action.
Details of the Dispute
The dispute centers on a complaint China lodged in October 2025. China claims that India’s Production Linked Incentive (PLI) schemes for advanced chemistry cell batteries, automobiles, and electric vehicles breach global trade regulations by favoring domestic products over imports. According to China, such measures discriminate against Chinese goods, which they argue contradicts India’s commitments under various international trade agreements, including the Subsidies and Countervailing Measures (SCM) Agreement and the General Agreement on Tariffs and Trade (GATT) 1994.
In its complaint, China specifically mentions three programs: the Production Linked Incentive scheme, the National Programme on Advanced Chemistry Cell (ACC) Battery Storage, and the PLI Scheme for the Automobile and Auto Component Industry. While these programs are designed to encourage local manufacturing, they have raised concerns in Beijing regarding their alignment with WTO rules.
WTO Process and Implications
Seeking consultations is the first step in the WTO dispute resolution process. If these consultations do not lead to a satisfactory resolution, the complainant can request a panel to review the matter. China’s request for a panel will be discussed at the next Dispute Settlement Body meeting, scheduled for January 27 in Geneva. This development could markedly increase trade tensions between the two nations, both members of the WTO.
If the panel process is initiated, it may take several months to reach a conclusion, potentially affecting ongoing trade negotiations and the economic relationship between India and China, which are already under strain.
Trade Dynamics Between India and China
India and China share a complex trading relationship, with China being India’s second-largest trading partner. However, the trade balance significantly favors China. In the fiscal year 2024-25, India’s exports to China fell by 14.5% to USD 14.25 billion, while imports increased by 11.52% to USD 113.45 billion, resulting in a trade deficit of USD 99.2 billion.
China’s request for a WTO panel comes at a time when it is aiming to broaden its electric vehicle (EV) market internationally. Chinese manufacturers, such as BYD, are investigating opportunities in Asia and Europe, despite facing challenges like a 27% tariff on EV imports imposed by the European Union. This situation adds further complexity to the ongoing trade dispute.
India’s Response and Policy Measures
In light of the challenges posed by international competition, India has implemented various policy measures to bolster domestic manufacturing. The government approved the PLI ACC Battery Storage scheme in May 2021, allocating Rs 18,100 crore for its implementation. This was followed by the PLI scheme for automobiles and auto components in September 2021, which received a budgetary allocation of Rs 25,938 crore. Additionally, in March 2024, India launched a policy to attract global EV manufacturers to set up production facilities within the country.
These initiatives underscore India’s commitment to enhancing its manufacturing capabilities and reducing dependence on imports. However, the ongoing trade dispute with China could complicate these efforts as both nations navigate the complexities of global trade dynamics.
Digihunt is not a financial advisor and this is not investment advice.