The epic bust-up between China and India could be ending
Witness calm in the Himalayas, diplomatic charm offensives and thickening trade links
Ask an Indian diplomat about relations with China and they will repeat a well-rehearsed mantra: there can be no return to normality until peace is restored on their disputed Himalayan border. That has been the official line for most of the time since 2020, when a deadly clash occurred there between Indian and Chinese troops. On the face of it, India’s stance is a rejection of China’s suggestion that the two countries should set aside the dispute, which has pushed India closer to America, and focus on areas of mutual interest.
Relations are indeed still far from their pre-2020 normality. And they are unlikely to return to it soon. Even so, there has been a quiet yet notable shift in recent months towards a new phase of relations defined by border stability and closer commercial ties. The shift reflects India’s urgent need for Chinese technology, investment and expertise to meet its immediate industrial needs. It is also based on China’s mounting concern about its own economy and escalating trade barriers worldwide.
The first sign of the shift came in November last year, when Indian restrictions on visas for Chinese professionals in some industries were relaxed. That was followed by a softening of rhetoric on China from Narendra Modi, the prime minister. In an interview with Newsweek magazine published on April 10th, weeks before the Indian election, Mr Modi described relations with China as “important and significant” and expressed hope that border stability could be restored. His defence minister, Rajnath Singh, said in late April that border talks were “progressive and satisfactory” and “no fresh tension has come up”. Then in May a new Chinese ambassador, Xu Feihong, arrived in Delhi after a hiatus of 18 months in which China’s embassy there operated without one. Mr Xu has since been on a charm offensive, meeting several members of the political elite.
China has also been unusually restrained in its public statements on India. Xi Jinping, China’s leader, did not congratulate Mr Modi on his re-election in June. However, China gave a relatively low-key response when Mr Modi thanked Taiwan’s new president, Lai Ching-te, for doing so (China claims Taiwan as its territory). And Chinese officials avoided criticising India after an American congressional delegation met the Dalai Lama, who it views as a separatist, there.
One reason for the recalibration is the apparent success of a new mechanism for managing border tensions. It relies on “buffer zones” where both sides withdraw troops and cease all patrols. Through 21 rounds of talks between military commanders, the two sides have already established such zones at five of seven flashpoints and are discussing others, although their strategic importance makes them more contentious.
The other impetus for change is a recent surge of demand for Chinese technology in India, despite official efforts to reduce its economic dependence on its neighbour. After the clash in 2020, India’s government banned 320 Chinese apps, launched tax raids on Chinese companies and introduced new rules requiring government approval for any Chinese investment. Bilateral trade dropped, and Indian officials joined Western counterparts in trying to “de-risk” supply chains.
And yet India’s dependence on Chinese imports has only grown (see chart). In the 2023-24 financial year China edged past America to reclaim its position as India’s top trading partner. India’s imports from China increased to $102bn (about 56% more than in 2020) out of a total $118bn in bilateral trade. India’s trade deficit with China has risen by around 75% since 2020.
More strikingly, China was India’s biggest source of major industrial products in 2023, accounting for around 30% in categories such as electronics, machinery, cars, chemicals and textiles, according to a recent study by the Global Trade Research Initiative (GTRI), a Delhi-based think-tank. The study found that India’s reliance on China was highest in imports of electronics, telecoms and electrical products, at 39%. Machinery was second, at 38%.
A year ago, “the narrative in India was that our imports from China are a worry”, says Ajay Srivastava, an Indian former trade official who runs the GTRI. That narrative has changed over the past two or three months, he adds; now the dominant theme is that not only does India need Chinese products, but it needs Chinese companies to make stuff in India. Under pressure from some Indian firms, the government is planning to relax visa restrictions to allow in more Chinese technicians.
Indian public views of China remain generally hawkish. Diplomatic relations are still touchy too: Mr Modi skipped a summit attended by Mr Xi and Russia’s president, Vladimir Putin, in Kazakhstan in July. And a bilateral Xi-Modi meeting does not seem imminent. But commercial ties look set to expand further in the coming years, as Indian and Chinese companies form joint manufacturing ventures in India, which will probably import machinery and components from China. Many of these ventures involve big and influential Indian companies. They are also in industries such as electrical vehicles and mobile-phone assembly that the government is subsidising to boost manufacturing.
In one high-profile example, SAIC Motor, a state-run Chinese company that owns the MG Motors brand, announced a joint venture in November with India’s JSW Group to produce electric vehicles in Mr Modi’s home state of Gujarat. The venture has since committed to sell a million vehicles annually and capture a third of India’s electric-vehicle market by 2030. JSW also plans to make electrical-vehicle batteries in eastern India, through a technology transfer deal with a Chinese manufacturer.
The trend suggests that some Western firms’ efforts to shift manufacturing to India from China may not result in a clean break. Apple already produces about 14% of its iPhones in India. But the latest public list of Apple suppliers shows that several of its Chinese component-makers have started manufacturing in India. Several more may soon follow suit.
Chinese technology is also integral to India’s infrastructure plans. A single state-run Chinese company, ZPMC, has already provided at least 250 of the cranes at Indian ports. Yet despite security concerns over these hi-tech cranes in India and America, private Indian port operators continue to install them. The Adani Group, one of India’s biggest conglomerates and port operators, took delivery in May of the final six out of 24 such cranes for a new port it is building in Kerala.
On the military front, India continues to hedge against China by enhancing ties with America and its allies. It is also bolstering relations with Russia to try to offset China’s growing influence there, as seen by Mr Modi’s recent bear hug with Mr Putin. And India and China still compete for influence elsewhere in the world.
Still, like its Western counterparts, India’s government has to balance the interests of military chiefs with those of business leaders, who argue that most alternatives to Chinese tech are too costly. Mr Modi will also be mindful that the recent loss of his party’s majority in parliament was partly because of frustration over a shortage of high-quality manufacturing jobs. India’s leader has good reason to fear China. For now, though, he needs it too. ■