Introduction
In a comprehensive analysis of India‐China bilateral relations, Dr Srikanth Kondapalli examines trade imbalances, border tensions,
and strategic opportunities amid shifting global alliances and China’s growing regional influence.
The recent Shanghai Cooperation Organization meeting in Tianjin on August 31st and September 1st, along with Beijing’s military victory parade, marked significant events in regional diplomacy. Equally noteworthy were the two phone calls between President Xi Jinping and President Trump in June and just days ago. These conversations initially focused on Taiwan-related red lines, resulting in the immediate denial of landing rights for Taiwanese President Elijah in Los Angeles.
While some suggest that improved US-China relations could be problematic for India in the longer run, I see a fundamental structural problem between China and the United States that remains intact. The Trump administration may seek to stabilize relations with China for the MAGA movement over the next two to three years, particularly to overcome rare earth metal deficiencies. However, the long-term conflict between these powers persists, even with Trump’s isolationist policies.
The decoupling and de-risking strategies by both the US and EU are here to stay, creating opportunities for India. If US-India trade talks yield concrete results, we could witness a significant shift in global supply chains.
China’s Expanding Global Footprint
China’s role as an emerging hegemon is undeniably gaining strength. The country recently launched its fourth global initiative—the Global Governance Initiative—adding to the GDI, GSI, and GCI announced four years ago. The Chinese footprint is expanding globally, despite the Belt and Road Initiative’s third summit scaling down offerings to approximately $95 billion. While addressing criticisms about debt diplomacy, environmental issues, and transparency concerns, China continues steadily with the BRI.
China-centered global networks are increasing, particularly given Trump’s isolationist stance. We’re witnessing significant Chinese Navy activity in the Indian Ocean, including submarine visits and surveillance ships. China remains the largest trading partner for approximately thirty Indian Ocean states. Additionally, China is enhancing the Himalayan Quad and the Indian Ocean dialogue process in Yunnan province.
China currently leads in 5G technology, the EV sector, quantum computing, AI, and renewable energy sources, along with e-commerce platforms. These technological advantages facilitate Chinese expansion in the global economic domain.
China’s Economic Challenges
However, there are significant red flags. Real estate is declining in China, and GDP growth has dropped from 10% in 2010 to approximately 5% in recent years. With Trump tariffs, China’s GDP is expected to grow at around 3% this year. Most critically, urban unemployment stands at 21%, with some estimates suggesting 40%.
COVID-related problems continue to linger. Approximately 46,000 companies have shut down in China due to COVID, resulting in $800 million in debt. Local governments face severe debt issues, and COVID-related unemployment affects an estimated 80 million people—a huge socioeconomic and political problem for the Communist Party.
India’s Strategic Sweet Spot
In this context, India occupies a sweet spot. With growth rates of 7.8% to 8% in the first quarter, if India maintains these figures despite global headwinds from tariffs and other depressing situations, it will be in a very advantageous position.
However, the “China Plus” strategy hasn’t worked out as expected. Of the 77,000 American companies in China, only 200 have moved to India, with others going to Vietnam, Indonesia, and other countries. There hasn’t been a massive shift, though opportunities exist. The 38,000 European companies in China face bottlenecks due to the National Intelligence Law of 2017, creating openings for India if EU-India trade talks improve. The UK-India Free Trade Agreement could trigger major collaborations in the industrial sphere.
Japan has 87,000 companies in China but only 1,300 in India. Prime Minister Modi’s visit to Tokyo resulted in a $65 billion pledge and transfer of Shinkansen high-speed railway technologies—two significant gains.
Unlike China, where demographics are becoming skewed with an average age of 37 years, India’s median age is approximately 28.2 years. Political leadership plays a crucial role in skill development and job creation. The H1B visa issue represents a definite step in attracting talent.
India’s geographical location in the Indian Ocean, combined with initiatives like SAGAR and others, enhances its strategic position. Consolidating the voice of the global south—demonstrated at the G20 meeting in New Delhi—positions India well for its upcoming BRICS chairmanship next year.
Bilateral Relations: Precarious Stability
Regarding bilateral relations, we’re moving toward precarious stability with China. I call it precarious because we’ve only signed disengagement and grazing patrol agreements, not deescalation and de-induction of troops. However, in his 50-minute meeting with President Xi in Tianjin, the Prime Minister mentioned peace and stability on the border prevailing, suggesting normalization in the near future.
Several developments are noteworthy: the Mansarovar Yatra has resumed, direct flights are being considered, and visa processes are underway. However, there’s a balance being maintained. Indian embassies and consulates are requiring Chinese visitors to show bank accounts with one lakh renminbi (approximately 12 lakh rupees equivalent) to obtain visas to India—possibly to avoid low-spending travelers.
Before COVID, 180 million Chinese traveled abroad. Even a small portion visiting India would be substantial. However, Communist Party cells control tourist agencies and divert traffic toward friendly countries. We’ve seen China weaponize tourism against South Korea during THAAD deployment, against Taiwan when they elected DPP candidates, and against Malaysia and Thailand.
China is also balancing its approach. Soon after Dr. Jaishankar’s visit in July, they announced dam construction, with Premier Liang visiting Tibet to attend these activities. President Xi himself has visited Tibet twice. There’s significant traction on highways and railways from Sichuan to Tibet, requiring us to prepare for long-term border stability.
Trade, Investment, and Dialogue Mechanisms
Regarding trade and investment, we haven’t removed Press Note Number Three, which restricts Chinese investment in India. Finance Minister Nirmala Sitharaman mentioned Chinese investment but expressed caution. In the last twenty years, total Chinese investment in India amounts to no more than $8 billion for an economy of $19 trillion. China is pressuring India to open consumer markets for the EV sector and other consumer durables. We’re making some inroads—MG (Morrison Garrison), a Chinese-acquired company, is now visible on Indian roads.
We’ve blocked Huawei 5G trials, so there’s no Chinese presence in the telecom sector. However, Huawei 5G networks operate extensively in Nepal, Bhutan, Bangladesh, Sri Lanka, and Maldives. In Pakistan, one-third of CPEC involves Huawei fiber optics.
The Prime Minister mentioned no double standards on terrorism, related to the 1267 committee and post-Pathankot terror attacks. We should expect more traction here.
There are thirty dialogue processes between India and China—strategic dialogue between foreign ministries, annual defense dialogue, youth exchange, media-to-media, think tank exchanges, financial dialogue, steel dialogue, and renminbi-rupee exchange discussions. None have resumed so far, suggesting more discussions in the coming year.
During Foreign Minister Wang Yi’s visit in August, we mentioned an expert group working on border management, with a striking reference to delimitation. The Special Representative mechanism aims to clarify the Line of Actual Control, but using terms like “delimitation”—the next step after LAC clarification—suggests possible progress in border talks.
Regional Dynamics
China’s role in South Asia increased substantially after Prime Minister Oli’s visit last December, when Nepal formally joined the BRI with concrete initiatives announced. However, with political turbulence in Nepal and the removal of Prime Minister Oli, the situation remains fluid.
The neighborhood has become challenging, with incidents in Bangladesh, Sri Lanka, and Maldives. Though Maldives has stabilized with the “India Out” campaign removed and the Prime Minister’s recent visit, neighborhood restructuring continues.
India remains in a sweet spot with strong growth rates. To maintain these rates, we must resolve infrastructure challenges. Despite investments in roads, railways, shipyards, and fiber optics, the manufacturing sector hasn’t taken off as expected. We anticipated it reaching 24% of GDP, but it remains around 18-19%.
These are the areas requiring focused attention to leverage our strategic advantages in an evolving geopolitical landscape.
