As India approaches its ambition of becoming the world's third-largest economy, it faces a delicate balancing act with China. The two nations are entangled in both economic interdependence and a protracted border standoff, primarily in Ladakh. Four years into the deadlock, recent developments suggest shifting dynamics influenced by both internal and external pressures on each side.
Diplomatic Engagements Amid Border Stalemate
India's diplomatic efforts with China have recently intensified, with External Affairs Minister S. Jaishankar and National Security Adviser Ajit Doval meeting China’s Foreign Minister Wang Yi at various international forums, including in Astana, Vientiane, and St. Petersburg. While both nations emphasized their respective stances on normalizing ties, Russia's role as a mediator is emerging as a notable influence. Diplomatic gestures aside, the underlying tensions remain as China continues to resist India’s calls for "disengagement and de-escalation" at the border.
Economic Pressures and Policy Shifts
India’s economic policymakers are navigating a complex situation: while the country seeks to boost foreign direct investment (FDI), there’s an ongoing debate on how much economic engagement with China should be pursued. In the recent pre-Budget Economic Survey, Chief Economic Adviser V. Anantha Nageswaran suggested that India should promote FDI from China rather than expanding trade, which currently tilts heavily in China’s favor. Despite Commerce Minister Piyush Goyal’s public denial of any policy shift, the government has permitted the entry of select Chinese electronics manufacturers, such as Shenzhen-based Luxshare Precision and Huaqin Technology, indicating a possible softening stance in certain economic sectors.
Security-First Approach to Bilateral Relations
Since the Galwan Valley clashes in June 2020, India has largely emphasized a security-driven approach in its relations with China. Foreign Minister Jaishankar stated that “peace and tranquility on the borders is essential” for meaningful bilateral engagement, a stance upheld by multiple government ministries, including Defense, Home Affairs, and Finance. This approach, however, has not fully permeated Indian society. India’s business sector, for example, has ramped up imports from China, and some major industrial players have even shown interest in employing disciplined Chinese labor. This reflects China’s traditional philosophy, “shangren wu zuguo” (businessmen have no motherland), which has seen Chinese firms and business interests working with various Indian sectors to expand trade ties.
The Trade Imbalance: China’s Limited Investment in India
Despite the strong trade relationship, India faces a significant trade deficit with China. Bilateral trade reached $118 billion last year, with China enjoying an $85 billion surplus. Over the past decade and a half, China has amassed a cumulative trade surplus of around $1.6 trillion from India. Yet, its investments in India remain marginal, totaling roughly $8 billion—an underwhelming figure given China’s $18 trillion economy. Indian exporters also encounter restrictive, non-tariff barriers when trying to access the Chinese market, even as China continues to benefit from extensive trade access in India.
China’s Economic Pressures and the Strategic Value of India
China, too, faces growing economic challenges, including real estate sector instability, mounting local government debt, a decline in domestic investment, rising urban unemployment, and stagnating consumption. Coupled with Western trade restrictions, these pressures are nudging China to look at growth opportunities in emerging markets like India. India’s robust economic growth and expanding consumer base could help invigorate China’s economy. However, the Chinese military continues to exert pressure on its civilian leadership to maintain a hardline stance on the border, limiting diplomatic flexibility.
The Broader Geopolitical Landscape
Global uncertainties, such as the Russia-Ukraine conflict and rising tensions in the Middle East, further complicate India’s geopolitical environment. For India to secure its growth trajectory, it will need to navigate these challenges while advancing exports and enhancing inward investments. India’s ambition to surpass $100 billion in foreign investment—an increase from the current $70 billion—will depend on balancing its security concerns with economic pragmatism.
Conclusion: The Need for Strategic Balancing
India’s relationship with China remains fraught with challenges as security priorities and economic interests increasingly clash. Despite calls for disengagement and de-escalation, China’s stance on border issues remains rigid. To foster stability and growth, India must deftly manage this delicate relationship, aiming to secure its borders while creating economic pathways that align with its strategic interests
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