Hope on the Horizon: India-China Relations and Economic Revival

India-China Relations

India and China cautiously explore the path to reconciliation: border negotiations and economic cooperation show signs of hope

India and China are cautiously navigating a path toward reconciliation after years of strained relations, highlighted by recent diplomatic efforts to resolve border disputes and enhance economic cooperation. Key developments include meetings between high-level officials, with significant progress reported in disengagement along the Line of Actual Control (LAC). Despite a surge in trade that has made China India’s largest trading partner, concerns over a substantial trade imbalance persist.

Analysts emphasize the need for India to implement reforms to attract Chinese investment and improve bilateral ties, while also addressing public sentiment and historical grievances that complicate relations. Both nations recognize the importance of economic development as a motivator for resolving disputes, but challenges remain in rebuilding trust and fostering deeper collaboration.

Key Concepts

• India and China are engaging in diplomatic efforts to reconcile after years of strained relations, focusing on border disputes and economic cooperation.
• A significant meeting between Indian National Security Advisor Ajit Doval and Chinese Foreign Minister Wang Yi during the BRICS summit marked a pivotal step in stabilizing bilateral relations.
• India has reportedly addressed approximately 75% of disengagement issues along the Line of Actual Control (LAC), indicating progress in military disengagement.
• Analysts emphasize the need for India to implement comprehensive reforms to attract greater Chinese investment and maximize foreign direct investment benefits.
• The inclusion of “narrowing differences” in a recent joint statement suggests a potential for conflict resolution between India and China.
• The trade relationship between India and China surged in the 2023–24 fiscal year, with China becoming India’s largest trading partner, but concerns over a significant trade imbalance persist.
• India is considering easing restrictions on Chinese investments in non-sensitive sectors to address the trade imbalance.
• Public opinion and rising nationalism in India, driven by anti-China sentiment, pose challenges for fostering cooperation between the two nations.
• The geopolitical dynamics involving the Quadrilateral Security Dialogue (QUAD) add complexity to India-China relations amidst rising tensions in the region.
• Strengthening economic cooperation and enhancing cultural exchanges are essential for rebuilding trust and establishing a foundation for future collaboration between India and China.

India and China are cautiously exploring avenues for reconciliation, a significant shift after years of tension. Recent diplomatic moves show both countries are willing to resolve outstanding border disputes and deepen economic cooperation. However, analysts warn that India must implement comprehensive reforms to attract more Chinese investment and promote the spillover effects of foreign direct investment (FDI).

India-China Relations Show Signs of Warming

A key milestone in the thaw was the meeting between Indian National Security Advisor Ajit Doval and Chinese Foreign Minister Wang Yi on the sidelines of the BRICS summit in St. Petersburg. The Indian Ministry of External Affairs noted that the meeting provided a platform to assess the progress made by both sides in resolving the Line of Actual Control (LAC) issue and marked a key step in the stabilization of bilateral relations.

Indian Foreign Minister S. Jaishankar further highlighted the progress in a speech in Geneva, saying that about 75% of the disengagement issues between India and China have been resolved and that India is open to economic cooperation with China and has not “closed the door of opportunity to Chinese business.”

Chinese officials expressed similar views, with Chinese Foreign Ministry spokeswoman Mao Ning confirming that the two sides had achieved military disengagement in four areas, including the strategically important Kalwan Valley. She said: “The situation on the China-India border is generally stable and controllable,” indicating Beijing’s cautious optimism.

Harsha Kakkar, a China affairs expert, and retired Major General, told VOA: “For the first time, the two sides have included the phrase ‘narrowing differences and resolving outstanding issues at an early date’ in their joint statement, which may imply that the two sides are expected to reach a solution.” He believes that China has realized that its adventurous actions have failed to bring substantial results and that the hostile relationship between the two countries is being exploited by the West. Therefore, maintaining peace is crucial to the development of both countries.

Kakar further added, “Peace must be maintained if the two countries are to develop. Currently, along the Line of Actual Control in Ladakh, the two countries have established a buffer zone between the areas of disengagement. Further disengagement is needed in both the standoff areas. But the trust level between the two countries is low and is unlikely to end soon.”

Trade Imbalance and Economic Cooperation

Historically, India’s relationship with China has been complicated, with geopolitical games and economic interdependence. However, analysts believe that both countries are aware of the importance of prioritizing economic development, which provides a strong impetus for resolving disputes.

Despite border tensions, trade between India and China grew significantly in the 2023–24 fiscal year, making China India’s largest trading partner with a total trade volume of $118.4 billion. However, the trade imbalance remains heavily tilted towards China, with India exporting only $16.66 billion worth of goods to China while importing about $101.74 billion worth of goods from China. This trade deficit has caused concern, and Jaishankar described this trade imbalance as “very unfair.” He stressed that India needs to open its market to Chinese companies to address these imbalances.

India is considering relaxing restrictions on Chinese investment in non-sensitive sectors such as renewable energy and battery manufacturing to strengthen economic ties. However, analysts say Chinese companies still need to be cautious about investing in India despite the warming diplomatic relations.

Vinod Sharma, managing director of India’s Deki Electronics, stressed the importance of eliminating visa discrimination against Chinese technicians. In an interview with VOA, he called on India to invest in structural reforms to promote high-quality development and actively promote joint ventures with Chinese companies, making technology transfer the cornerstone of future cooperation.

Manoj Joshi, a distinguished fellow at the Observer Research Foundation, expressed a similar view. He said that while India is willing to readjust its relations with China, resolving the border issue in eastern Ladakh remains the key to making progress. He stressed that the ball is currently on China’s side, and India’s insistence on restoring the status quo in Ladakh will normalize relations between the two countries.

The Quadrilateral Security Dialogue (QUAD) and Geopolitical Complexity

The geopolitical landscape also complicates India-China relations, especially in the context of the Quadrilateral Security Dialogue (QUAD). Although Indian Prime Minister Narendra Modi has clarified that QUAD is not aimed at China, the existence of the mechanism undoubtedly constitutes a check on China, especially as the situation in the South China Sea is tense and the Taiwan issue is attracting much attention.

Meanwhile, the competition between China and the United States adds further complexity. Major General Kakar noted that both countries face external pressures, and a successful Modi-Xi summit could significantly change the global dynamics. This is particularly important given China’s growing influence in South Asia and India’s increasing role in Southeast Asia.

Although both countries have shown a willingness to move forward, historical confrontations and psychological trauma cannot be easily eliminated. The heavy casualties caused by the 2020 Kalwan Valley conflict still leave a deep imprint in the memories of both sides. Analysts believe that frequent diplomatic contacts and military transparency will be key steps in building trust.

They said India needs to take a more proactive approach, not only to address domestic challenges but also to develop a coherent strategy to engage with China. This includes not only economic reforms but also a reassessment of its foreign policy to balance relations with China and the United States.

Nationalism and the Influence of Public Opinion

Public opinion and nationalism play a role in India-China relations. Anti-China sentiment in India continues to rise as border conflicts and trade deficits intensify. To promote cooperation with China, the Indian government must mitigate these negative sentiments through public diplomacy and education.

Likewise, China’s leadership faces challenges. Historical resentments and territorial claims against India have solidified public perceptions of the relationship. Through transparent dialogue and cultural exchange, both sides can build new public perceptions and lay the foundation for future cooperation.

As the two countries explore avenues for reconciliation, long-standing border disputes, economic imbalances, and strategic mistrust must all be fully addressed. Despite the complex outlook, analysts are cautiously optimistic that the two countries can normalize relations through constructive dialogue.

Experts believe that the future of India and China depends on whether they can transcend historical baggage and adopt a comprehensive and constructive approach to engagement, including strengthening economic cooperation and deepening people-to-people exchanges. Through academic cooperation in areas such as technology, agriculture, and the environment, the two countries can enhance mutual understanding and reduce hostility.