After years of intense tensions following the 2020 and 2021 border clashes, relations between India and China are showing tentative signs of thawing.
Narendra Modi’s visit to China last year, the resumption of direct flights, and the meeting between the Commerce Ministers on March 27 indicate a willingness for pragmatic normalization.
However, as highlighted in a recent analysis by The Economist, this rapprochement is proceeding cautiously and full of obstacles, amid mutual distrust, divergent interests, and a complex geopolitical context.
The first signs of normalization
Less than six years ago, Indian and Chinese soldiers faced off with sticks in high-altitude clashes that caused dozens of casualties and completely froze relations between the two countries.
Today, according to The Economist, the situation is changing, albeit slowly. Last summer, Indian Prime Minister Narendra Modi made his first visit to China since those incidents. In October, direct flights between the two countries resumed, and on March 27, the Commerce Ministers, Piyush Goyal and Wang Wentao, met to discuss trade exchanges.
These are concrete steps that testify to an attempt to break out of the long period of deadlock.
The reasons for necessary pragmatism
Several factors push both Asian giants towards normalization. On the Indian side, many manufacturing companies still depend on Chinese components and technical expertise. In Delhi, hawkish voices on national security coexist with protectionist entrepreneurs, but awareness is growing that a more pragmatic approach towards China is needed, even if the long-term goal remains to reduce this dependence.
On the other side, Beijing has no interest in fostering India’s growth as a rival, but neither does it want to manage a hostile neighbor while facing numerous other international challenges.
Last year, Chinese Vice President Han Zheng used a suggestive metaphor, inviting the two countries to dance a “tango between dragon and elephant,” an unusual image to describe harmonious and mutually beneficial relations.
A still awkward dance
Despite these signals, the rapprochement proceeds with uncertain steps. A clear example concerns Chinese investments in India.
In the last five years, imports of Chinese goods have continued to grow, while capital flows have almost dried up. The main cause was a regulation introduced in 2020 that gave Indian authorities broad discretion to block investments coming from China.
Last month, the Delhi government announced two changes: companies with less than 10% Chinese beneficial ownership can avoid particularly onerous checks, and decisions related to projects in critical sectors (such as capital goods, electronic components, and inputs for solar projects) must be made within 60 days. The government hopes these measures will revive foreign investments, and some Indian commentators have called them a “change of strategy.”
However, this is a very partial opening.
Persistent lack of trust
Experts like former Indian ambassador to Beijing Shivshankar Menon note that the new rules still leave wide discretion to authorities and it is unclear whether previously blocked investments will now be approved.
The Chinese companies most interesting to India – large ones with cutting-edge technologies – might be discouraged by the 10% ownership cap. Moreover, according to Santosh Pai, a lawyer specialized in cross-border operations, the rules are vaguely formulated and lack clear definitions of terms like “capital goods.”
Complicating the picture is the deep lack of trust accumulated over the years. Many Indian executives and officials feel victims of bullying attitudes by China, recalling episodes such as the blocking of exports of fertilizers and tunnel-boring machines or the recall of Chinese engineers employed in Indian iPhone assembly plants.
Chinese investors also view the Indian market with suspicion after seeing colleagues involved in tax disputes. Emblematic cases are the failure of a major BYD project, China’s largest electric vehicle manufacturer, and Ant Group’s sale of its stake in an Indian company. Chinese analysts remain skeptical about the real effectiveness of the new measures.
Strategic divergences
Another important obstacle is that both countries want to set the terms of the relationship. For India, this primarily means reducing a trade deficit that exceeds 100 billion dollars a year.
During the meeting with Minister Wang, Piyush Goyal again requested greater market access in China for Indian pharmaceutical products. At the same time, Delhi aims to obtain investments that transfer Chinese know-how, especially in green tech.
China, on the other hand, might be interested in increasing its influence in India but does not intend to cede advanced technologies. Chinese scholar Liu Zongyi warns that the new Indian rules could facilitate technology acquisition by local companies only to then exclude Chinese investors.
Since Chinese companies have investment alternatives elsewhere in the world, much of the burden of overcoming these tensions falls on India. However, Delhi still seems uncertain about how to proceed, perhaps also because it continues to only partially understand its large neighbor.
Future prospects
Recent American moves make this scenario even more complex, according to The Economist.
Modi’s visit to China took place just weeks after Trump imposed very high tariffs on Indian goods. The war in Iran and the consequent energy shock have also strengthened Indian doubts about the reliability of the United States as a partner, making it more urgent for India to diversify its energy supply sources.
Some observers in Delhi see the March openings as a first step in this direction. However, it remains clear that the “awkward tango” between India and China will continue for a long time, between necessary pragmatism and deep-rooted mistrust.
