While it’s too early to declare a full thaw, recent developments suggest a potential warming of relations between India and China. There has been a noticeable increase in diplomatic dialogue aimed at resolving longstanding issues, particularly along the two friction points in Eastern Ladakh. Simultaneously, a renewed debate is emerging within India regarding economic engagement with China.
In July, Indian External Affairs Minister S. Jaishankar met with China’s top diplomat Wang Yi twice. The first meeting hinted at a shift in Beijing’s tone. Wang Yi refrained from the usual rhetoric about the border issue’s “appropriate position,” instead advocating for “properly handling and controlling the situation in the border areas, while actively resuming normal exchanges.” Following their second meeting, the Chinese statement emphasized the need to “work for new progress in consultations on border affairs.” This momentum continued with two meetings of the Working Mechanism for Consultation & Coordination on India-China Border Affairs, the latest of which occurred just last week.
The Chinese readout from these discussions was notably optimistic, stating that both sides had “agreed to work together to turn over a new leaf in the border situation at an early date.” It added that “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.”
In contrast, the Indian statement was more measured, noting 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 talks on the resolution of issues in Depsang and Demchok remains to be seen between India and China.
Debate Over Chinese Investments
Meanwhile, the Economic Survey released before India’s July budget hinted at a possible openness to future Chinese investments. Since the issuance of Press Note 3 in April 2020, which imposed stricter scrutiny on investments from bordering countries, Chinese investments have faced significant hurdles. The Galwan Valley clashes in June 2020, which resulted in the death of Indian soldiers, further dampened any enthusiasm for Chinese capital. However, there are signs that this sentiment is shifting.
Earlier this year, reports emerged that the Indian government had approved 124 investment proposals from neighboring countries since April 2020 while rejecting 201. Approximately 200 proposals, many from China, are still pending. Although Press Note 3’s scrutiny remains in place, there has been a slight relaxation.
The MG Motor-JSW Deal
In March, a significant deal was finalized between MG Motor India and JSW Group, with Chinese auto giant SAIC Motor divesting a 51% stake. Subsequently, reports in May indicated that the government had begun approving Chinese investment proposals on a case-by-case basis. By July, it was reported that the government was planning to establish an inter-ministerial panel to accelerate the approval process for Chinese investments in Indian companies. This process would involve meeting specific conditions, such as significant contributions to local manufacturing, excluding Chinese nationals from management positions, and ensuring that Indian entities hold a majority stake in joint ventures.
In addition, reports suggested that the Indian government was fast-tracking visas for Chinese technicians and engineers, recognizing the delays’ negative impact on Indian industries. By late August, the Economic Times reported that the inter-ministerial panel had approved several Chinese investment proposals in the electronics manufacturing sector.
Pragmatic Approach with Risks between India and China
Welcoming Chinese capital and expertise, particularly in areas that bolster India’s manufacturing sector and strengthen global value chain linkages, is a pragmatic and strategic approach. It aligns with India’s broader strategic interests. However, this does not negate the need for careful scrutiny. As External Affairs Minister Jaishankar recently noted, given the current geopolitical context and India’s unique challenges with China, it is “common sense that investments from China should be scrutinized.” This scrutiny, however, should not be ad hoc. Establishing a clear, transparent investment review mechanism with specific guidelines and timelines would provide greater predictability for industries and ensure adequate oversight. This process should also identify critical sub-sectors for national security and exclude Chinese entities from these areas, with the list evolving through regular reviews.
Nevertheless, Indian industry must remain cautious about the India and China relations. Collaborating with Chinese entities and relying on Chinese capital is inherently risky, given the volatile nature of India-China relations. The prioritization of politics and security over economic interests has been a defining feature of this relationship, particularly since the Doklam standoff in 2017. The structural tensions between the two nations mean that volatility will likely continue, making the risks for industry persistently high.
As India navigates this complex relationship, it is crucial for its political and strategic communities to clearly define the desired outcome in relations with China. While there is much discussion about the need for a new modus vivendi, the specific contours of this desired state and the steps India needs to take to achieve it require deeper, more urgent reflection. Only with a clear strategic vision can policy move forward with purpose and pragmatism between India and China.