India’s Relations with China: A Shift in Policy

• Media speculation suggests India’s relations with China may be thawing, with suggestions for a more liberal attitude towards Chinese FDI.
• India’s Minister of External Affairs S. Jaishankar noted that 75% of disengagement problems with China have been resolved, but the “bigger issue” is the increasing militarisation of the border.
• National Security Adviser Ajit Doval and CPC Political Bureau member Wang Yi agreed to work urgently to disengage in remaining areas, but no breakthrough in negotiations on disengagement in Depsang Plains and Demchok.
• The restoration of peace and tranquillity in border areas remains unclear, with little visibility on the terms of disengagement along “friction points.”
• Economic Commentary 2024 favors India’s integration into China’s supply chains through Chinese investments, rather than importing from China.
• These commentaries fail to consider the complex dynamics of India-China relations and the imperative of economic derisking vis-à-vis China.

China’s Demands and India’s Response

China’s Demands
• China demands a level playing field for Chinese companies, visa facilitation, resumption of direct flights, and permission for Chinese journalists to be stationed in India.
• India argues these issues are symptoms of a more fundamental problem they have created and must be addressed first.
• China appears to be engaged in a game of attrition, expecting India to cave in incrementally and acquiesce to new facts.

India’s Bilateral Trade Deficit
• China is not willing to address India’s trade deficit and the impediments faced by Indian companies in accessing the Chinese market.
• India’s trade deficit with China exceeded $105 billion in 2023, and its exports declined to $16 billion in 2023 from $23 billion in 2021.

Securitization and Diversification
• Both the United States-led West and China are securitizing their economies and de-risking and diversifying.
• If India seeks closer integration with Chinese supply chains, global companies might be discouraged from considering India as their alternate node for global value chains.

China’s Market Economy
• China’s objective of dominating future industries and prioritising exporting its way out of its economic difficulties would aggravate existing tensions in economic relations with both advanced economies and emerging economies like India.

China’s Game Plan
• China’s rigorous scrutiny of outward flows of investment and technology aims to maximize domestic value chains and make the country indispensable in global technology production.
• China has advised its carmakers to ensure that advanced electric vehicle technology stays in the country and they produce key parts domestically and export knock-down kits to their foreign plants.

Implications of Free Access to Chinese Companies
• Giving free access to Chinese companies will attract low value-addition investments and be a recipe for retarded industrialisation in many sectors that China seeks to dominate the world globally.
• The expectation that imports from China can be reduced by boosting FDI from China is not borne out by the experience of other geographies which have received substantial Chinese investments.