It has been said that it takes only a minute to rupture ties, but needs years to repair them. The recent meeting between career diplomats from India and China achieved some progress in normalizing relations between the two powerful Asian neighbours, riven by festering border disputes and uneven trade balances. It was the latest in a series of engagements following the October meeting between Prime Minister Narendra Modi and President Xi Jinping after a gap of almost five years. The two nations agreed to resume people-to-people exchanges as a step towards dispelling mistrust on both sides of the 3,500km border.
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Two developments hold special significance. The first is a resumption of direct flights, once relevant authorities finalize the appropriate framework. Media reports estimate that about 500 direct flights operated every month, linking different cities of the two countries, before border incursions by Chinese troops in 2020 strained relations and snapped all air-links. The second is China’s signalling of respect for Indian sensitivities by agreeing to restart the Kailash Mansarovar pilgrimage. Two other subsidiary agreements—to resume media and think-tank interactions as well as cooperation on trans-border rivers—are also critical.
What will be vital in giving a leg-up to the relationship would be addressing concerns in the realm of economic and trade ties. India has an uneven trade balance with China, with the deficit growing every year. The gap widened to over $85 billion in 2023-24, surpassing previous records and earning notoriety as the largest trade deficit we have vis-a-vis all our trade partners. Beijing has disregarded New Delhi’s concerns for years, even as it imposed restrictions on a number of export items in which we have a competitive advantage (such as active pharmaceutical ingredients), while flooding the Indian market with a variety of Chinese products.
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This one-way trade flow has another characteristic. It lacks transfers of technology and shared participation in global value chains with investments from within the region. For years, we have demanded that China step up foreign direct investment (FDI) in India to make up for uneven trade. The Economic Survey for 2023-24 had also advocated a two-step feint for China: rationalizing imports but welcoming FDI.
Any red carpet rolled out for Chinese investments, though, will have to be nuanced. Beyond limited curbs on FDI in some sectors, Indian strategists must strive to attract investments in high-tech areas, away from sweatshops and low-value assembly lines. Recent revelations of China’s technological progress, especially its advances in artificial intelligence (AI) through DeepSeek, hold an important lesson for us. India has long, deep and varied experience in information technology.
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Ideally, both countries should provide a pan-Asia platform for building and rolling out AI solutions that are free of American or European biases. India and China are also pioneers in frugal innovation, with which DeepSeek has shaken the West, and combining these capabilities could yield valuable breakthroughs in chip technology as well as new standards in clean-tech. Two notes of caution are necessary here. While the cessation of hostilities and enhanced trade ties with China are necessary, India must ensure its multi-faceted relationship with the US is not jeopardized in the process. And we must remember that relations between neighbours can never heal fully unless border issues are resolved once and for all.
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