It’s not a thaw yet, but there are certainly signs of some warming in the India-China relationship. Of late, there has been an uptick in dialogue to resolve outstanding issues along two friction points in Eastern Ladakh. At the same time, there is a fresh debate underway within India on economic engagement with China.

 July witnessed two meetings between the Indian External Affairs Minister S. Jaishankar and China’s top diplomat Wang Yi. The first of these had indicated a softening of tone from Beijing. While eschewing remarks about putting the border issue in the “appropriate position”, Wang called for “properly handling and controlling the situation in the border areas, while actively resuming normal exchanges”. Following the second one, the Chinese statement talked about the need to “work for new progress in consultations on borderaffairs.” Since then, within a month, there have been two meetings of the Working Mechanism for Consultation & Coordination on India-China Border Affairs. The most recent of these took place last week.

“Agreed To Turn Over A New Leaf”

 The Chinese readout following the conversation was rather positive. It said that both sides had “agreed to work together to turn over a new leaf in the border situation at an early date”. It further added: “The two sides exchanged in-depth views on relevant issues in border areas, further narrowed differences, expanded consensus, and agreed to strengthen dialogue and consultation, accommodate each other’s legitimate concerns, and reach a mutually acceptable solution at an early date.”

The Indian readout was much more contained. It said that “the two sides had a frank, constructive and forward-looking exchange of views on the situation along the Line of Actual Control (LAC) to narrow down the differences and find early resolution of the outstanding issues”. The impact of these meetings on actual resolution of the issues in Depsang and Demchok remains to be seen.

The Question Of Chinese Investments

Meanwhile, the Economic Survey released before the new NDA government’s budget in July indicated that India could be more open to Chinese investments in the future. Investments from China have had to face government scrutiny since the issuance of Press Note 3 in April 2020. The notification was seen as an effort by the government to direct Chinese capital in desirable domains. However, the standoff in Ladakh and the subsequent killing of Indian soldiers during the clashes in the Galwan Valley in June 2020 extinguished any appetite for Chinese investments. That situation seems to be changing now.

Earlier this year, it was reported that since April 2020, the Indian government has approved 124 investment proposals from bordering countries and rejected 201. Around 200 proposals are said to be pending with the government. A large number of these proposals were from China. While the scrutiny under Press Note 3 remains active, there has been some easing.

The MG Motor-JSW Deal

For instance, in March, the long-discussed joint venture between MG Motor India and JSW Group was finally sealed. It entailed Chinese auto giant SAIC Motor divesting a 51% stake.

Subsequently, in May, reports emerged that the government had begun moving on approving Chinese investment proposals with Indian firms on a case-by-case basis. In July, it was reported that the government had notified electronics and automobile manufacturers about plans to establish an inter-ministerial panel to accelerate the approval process for investment proposals from Chinese firms in Indian companies. The assessment would require the proposals to meet certain conditions, such as the significance of investment and technology for enhancing the local manufacturing supply chain, exclusion of Chinese nationals from the management and board of the investee firm and the Indian entity holding a majority stake in any joint venture.

At the same time, reports indicated that the Indian government was looking to fast-track visas for Chinese technicians and engineers, given that delays were hurting Indian industry. Then in late August, the Economic Times reported that the inter-ministerial panel had approved five to six investment proposals involving Chinese entities in the electronics manufacturing sector.

A Good Approach, But Not Without Perils

Being open to Chinese capital and talent, particularly those that aid the development of India’s manufacturing sector and deepen linkages with global value chains, is a pragmatic and prudent approach. It is, in fact, in India’s larger strategic interest to do so. This is not to argue that there isn’t any need for scrutiny. The External Affairs Minister is right to argue, as he did at a public forum last week, that given the current geopolitical scenario and India’s peculiar challenges with China, it is “common sense that investments from China should be scrutinised”. However, this should not be an ad hoc process. It is imperative to establish a new investment review mechanism with clear guidelines, conditions and timelines. This will engender greater predictability for industry, and ensure adequate democratic oversight. Such a process should also entail delineating a narrow set of sub-sectors as critical from a national security perspective and therefore walled off from Chinese entities. This list can evolve dynamically following periodic reviews.

That said, from the perspective of Indian industry, working with Chinese entities and being reliant on Chinese capital is likely to always remain a perilous endeavour. Politics and security have always come first in the India-China dynamic. Events over the past seven years since the Doklam stand-off have only further entrenched this trend. In addition, given the structural fault lines between the two sides, volatility is likely to remain a feature of the India-China relationship. The risks for industry, therefore, are always likely to remain high.

India Must Know What It Wants

Finally, while we are in a moment of policy churn, it is imperative for India’s political elite and strategic affairs community to deliberate on what it is that we desire in our relationship with China. Many have talked about the need for a new modus vivendi. But what are the contours of this new, desirable state of affairs that we wish to arrive at? And what does India need to do to get there? These are questions that need deeper yet urgent reflection, for policy to proceed with purpose and pragmatism rather than being reactive.

(Manoj Kewalramani is the Chairperson of the Indo-Pacific Studies Programme at the Takshashila Institution.)

Disclaimer: These are the personal opinions of the author

London is known for its open intellectual climate, where no idea is off-limits. But even in this dynamic city – and indeed in Washington too – it’s almost blasphemous to suggest that Russia and the West can be partners, or that the US and China can coexist as global powers. Recently, Nigel Farage, the Reform Party leader in the UK, faced a storm for urging the West to negotiate sensibly with Russia over Ukraine, calling the war a ‘complete stalemate’. People accused him of “echoing Russian propaganda”.

In India, we often hear that we don’t cultivate a society where all ideas are welcome. But let’s hope that suggesting a new chapter of “Hindi-Cheeni bhai-bhai” (India-China brotherhood) isn’t seen as blasphemy. The strong anti-China sentiment after the Galwan Valley clash in 2020 seems to have subsided. We’re buying more Chinese goods now than ever. In 2023, our bilateral trade hit over $136 billion. Hopefully, even those who burnt Chinese products in Gujarat and Delhi following the border skirmishes are more open to the idea now.

Sure, it might sound crazy to suggest that India and China should become trusted partners like the US and India, or Russia and China. But, it’s not entirely out of the question.

Sure, it might sound crazy to suggest that India and China should become trusted partners like the US and India, or Russia and China. But, it’s not entirely out of the question.

Major Geopolitical Shifts

India’s rise to become a global power is unstoppable; even China knows that. Talking to Chinese academics and journalists, you get the sense that they’re open to establishing long-term ties based on mutual respect. They like India, they want more people-to-people interactions, and one of them even wondered recently why India does not try to cast its spell over the dragon through its soft power of Bollywood  

Both countries have the responsibility to lift millions of their combined 2.8 billion people out of poverty. Prime Minister Narendra Modi has pledged to make India a developed country by 2047, which is a huge task. There are challenges, but if India and China team up and leverage each other’s strengths, it could be a major geopolitical shift, with far-reaching implications for global politics. 

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The US and its allies might be shocked and deeply concerned by a close India-China partnership. The West has benefited from the rivalry between the two countries as it aligns with their strategy of counterbalancing China’s rise. A partnership between these two Asian giants could undermine the West’s strategic interests in the region. Kishore Mahbubani, former Singaporean ambassador to the UN, has often said that most of Asia would cheer if this were to happen.

So, can India and China find common ground despite tensions over their disputed border? Prof. Mahbubani believes that while the two may never be best friends, they can have a good working relationship. He even says the 21st century belongs to the CIA (China, India, and ASEAN) countries. With US power on the decline, these countries will drive the world’s economic growth.

A Rollercoaster Ride

The idea of India and China being close friends isn’t new. Historically, they’ve acted like quarrelsome neighbours who fight and make up repeatedly. They share a long history of cultural and economic exchange dating back over two millennia. The Silk Road facilitated trade, and Buddhism, which started in India, found a significant following in China. These ancient ties laid a foundation of mutual respect and cultural affinity. During the colonial era, both countries faced subjugation by Western powers, fostering a sense of shared struggle. 

After gaining independence from the British, India faced border issues with China, and they continue to strain their relationship. In the early 1950s, the relationship was marked by camaraderie, epitomised by the slogan “Hindi-Chini Bhai-Bhai“. However, this period of cooperation was short-lived. The border dispute escalated into a full-scale war in 1962, leaving a lasting scar on bilateral relations. The disputed borders, particularly in the Aksai Chin and Arunachal Pradesh regions, remain contentious issues.

The rivalry between the US and China will continue, and India will remain under US pressure in its effort to manage China. However, India’s strategic positioning between the US and China can work to its advantage.

Before the Galwan incident, Prime Minister Narendra Modi naturally leaned towards engaging with China. As Gujarat’s Chief Minister, he made four trips to the country to attract investment. As Prime Minister, he has visited China twice, and President Xi Jinping reciprocated with two visits to India. Both countries have emerged as major global economic powers, engaging in significant economic competition and areas of cooperation within multilateral frameworks like BRICS and the Shanghai Cooperation Organisation (SCO).

Strategic Rivalry

Strategically, India and China view each other with suspicion. The latter’s close ties with Pakistan, its infrastructure projects in South Asia under the Belt and Road Initiative (BRI), and its military presence in the Indian Ocean have heightened India’s security concerns.

Conversely, India’s growing partnership with the US and its participation in the Quad (Quadrilateral Security Dialogue) is viewed warily by China. The 2020 Galwan Valley clash exacerbated tensions and highlighted the fragility of the relationship. Despite several rounds of military and diplomatic talks, a comprehensive resolution to the border disputes remains elusive.

Mumbai’s Shanghai Dreams

Many youth in India might not know that not too long ago, India used to compare itself with Pakistan in all spheres. This attitude changed around the turn of the millennium, when the Maharashtra government launched a mega project to revamp Mumbai in 2004, based on the “Vision Mumbai” report by Bombay First, an organisation comprising some of Mumbai’s super-rich stakeholders. The report outlined strategies for transforming Mumbai into “another Shanghai”. While the project to transform Mumbai is still a “work in progress”, it marked the beginning of India’s comparisons with China. Today, China sees India as its great rival, at least in Asia.

Read | China Is Revamping Its Military, And India Must Not Take It Lightly

Projections show that the Indian economy will surpass Germany and Japan’s to become the world’s third-largest one by 2027. Currently, however, India’s economy is only 19% the size of China’s, even though it feeds nearly the same number of people. According to the International Monetary Fund (IMF), India’s nominal GDP in 2023 stood at $3.5 trillion, compared to China’s $18.2 trillion. India’s per capita income was $2,411, while China’s was $12,720. China’s exports last year exceeded $3.38 trillion, while India’s exports were $778 billion.

Collaboration Possibilities

Since China opened its economy in 1978, it has lifted 800 million people out of poverty – a feat that hasn’t been matched by any regime in history. India has also succeeded in reducing poverty significantly. Both nations have many more millions to help. Collaborating in economic development, technology, infrastructure, environmental initiatives, healthcare, cultural exchange, and geopolitical stability can benefit both countries and the world. Overcoming historical tensions and building trust through consistent dialogue will be crucial.

The intense rivalry between the US and China will continue, and India will remain under pressure from the US to stay a reliable partner in its effort to manage China. However, India’s strategic positioning between the US and China can work to its advantage. Ultimately, New Delhi’s strategic interests are best served by a balanced approach that navigates the complex dynamics of US-China relations while advancing its own national objectives. 

India knows that neighbours with shared borders may fight at times, but they can still continue to believe in the ‘love thy neighbour’ dictum.

(Syed Zubair Ahmed is a London-based senior Indian journalist with three decades of experience with the Western media)

Disclaimer: These are the personal opinions of the author