China has formally requested the World Trade Organisation's dispute settlement body to establish a panel to examine India's incentive schemes for automobiles, batteries, and electric vehicles, marking an escalation in the trade dispute between the two Asian economies.

Dispute Escalation Following Failed Consultations

The request comes after bilateral consultations held on November 25, 2025, and January 6, 2026, failed to reach a mutually agreed solution. In a communication dated January 16, China stated that "consultations failed to resolve the dispute" and formally requested the Dispute Settlement Body to establish a panel to examine the matter. The request has been placed on the agenda for the next Dispute Settlement Body meeting scheduled for January 27 in Geneva.

China initially filed the complaint in October, alleging that certain conditions in India's Production Linked Incentive schemes violate global trade rules by discriminating against Chinese goods. Beijing argues that India's measures are contingent upon the use of domestic over imported goods and appear inconsistent with obligations under the SCM Agreement, GATT 1994, and the TRIMs Agreement.

India's Incentive Schemes Under Scrutiny

The dispute centers on three key Indian programmes designed to boost domestic manufacturing:

The PLI ACC scheme, approved in May 2021, aims to enhance domestic cell production and reduce reliance on imports while lowering manufacturing costs. The automobile PLI scheme focuses on overcoming cost disabilities and boosting domestic manufacturing of Advanced Automotive Technology products, encouraging fresh investments and job creation.

Trade Dynamics and Market Context

The dispute unfolds against the backdrop of significant trade imbalances between the two countries. China serves as India's second-largest trading partner, with notable trade flow changes in the recent fiscal year:

Chinese EV Industry's Global Expansion Challenges

China's complaint coincides with its EV manufacturers' efforts to expand overseas amid domestic market challenges. Chinese EV builders exported 2.01 million pure electric and plug-in hybrid vehicles in the first eight months of the year, representing a 51.00% increase from the same period previously. However, Chinese manufacturers face international resistance, with the EU imposing a 27.00% tariff on Chinese EVs to limit sales in the bloc.

Facing overcapacity, declining domestic sales, and price wars, Chinese hybrid car makers like BYD are actively seeking overseas markets, particularly in the EU and Asia. India's large automotive market represents a significant expansion opportunity for these manufacturers.

WTO Dispute Process and Implications

Under WTO rules, seeking consultation represents the first step in the dispute settlement process. When consultations fail to produce a satisfactory solution, the complainant can request panel establishment to rule on the raised issues. The upcoming January 27 meeting will determine whether the WTO proceeds with panel formation to examine China's allegations against India's incentive schemes.

China's property sector faced continued pressure in December, with new home prices extending their downward trajectory despite repeated government interventions aimed at market stabilization. The latest official data from the National Bureau of Statistics reveals persistent weakness across the residential market, highlighting ongoing challenges in one of the economy's key sectors.

December Price Performance Shows Accelerating Decline

New home prices in China fell 0.4% month-on-month in December, matching the pace of decline recorded in November. However, the annual comparison painted a more concerning picture, with prices dropping 2.7% year-on-year, representing an acceleration from the 2.4% decline observed in the previous month.

Widespread Price Weakness Across Cities

The National Bureau of Statistics survey of 70 cities revealed the extent of the market downturn. Only six cities posted price gains in December, while 58 cities recorded declines, demonstrating the broad-based nature of the property sector's challenges.

The secondary market showed similar weakness, with existing home prices in tier-one, tier-two, and tier-three cities all falling faster compared to the previous year. This comprehensive decline across both new and existing home segments underscores the depth of the current market adjustment.

Broader Market Indicators Reflect Sector Distress

The property sector's struggles extended beyond pricing to fundamental market activity. According to separate official data, property investment in China dropped 17.2% while home sales by floor area decreased 8.7% in 2025, reflecting reduced confidence and activity across the residential market.

Government Recognition of Sector Transformation Needs

An article published in Qiushi, the Communist Party's official journal, acknowledged the property sector's critical role in the economy while calling for significant policy intervention. The publication described the sector as "undergoing a profound adjustment" and emphasized the need for "strong policy actions" to stabilize market expectations.

The property crisis, which began unfolding in mid-2021 following government campaigns to curb excessive borrowing, has created substantial financial distress among major developers. Companies like Country Garden and Evergrande have faced significant challenges due to heavy debt burdens and backlogs of unfinished projects.

China's financial regulator announced plans to promote the "normal operation" of government programs designed to accelerate financing support for eligible residential projects that have been stalled, indicating continued policy focus on addressing the sector's structural challenges.