Pragmatism undergirds New Delhi’s China policy

The problems between the two, aggravated by Chinese actions in eastern Ladakh, had complicated bilateral relations. The Indian response was two-tiered, involving security and economic ties. On the security front, New Delhi took nuanced steps, instead of escalation; it matched the Chinese deployment on its side of the Line of Actual Control (LAC) and pivoted its military’s orientation away from Pakistan to China. It pointedly also enhanced the nature and scale of its engagement with the United States.

On the economic side, India intensified policies to restrict Chinese business activities in India, including investment screening, product bans and tax investigations. Approvals of Chinese proposals became rare in the wake of the Galwan clash and the process intensified in 2023 when border negotiations to roll back the 2020 Chinese actions yielded no results. Chinese motor vehicle companies seeking to invest billions of dollars in India were blocked. India also banned over 350 Chinese mobile apps.

Direct flights to China were halted and tax investigations were mounted against Chinese telecom majors, and they were banned from India’s 5G trials. India also blocked all visas for Chinese nationals since 2020, even though this hit projects that needed Chinese advisers and technicians.

Another aspect of Indian policy was to give an additional fillip to the domestic economy through measures like the Production Linked Incentives (PLI) to attract companies that wanted to leave China. The PLI scheme is beneficial but will take time as well as continued supply-chain links to China to be successful.

The Chinese reaction was quite different. If India chose not to escalate things militarily, Beijing sought to do the same on the economic front. It sought to persuade India to separate the border issue from those relating to the economy and people-to-people ties. Goods imports from China surged 56% since Galwan, and India’s trade deficit with China has nearly doubled to $85 billion, so Beijing has not been complaining. Among the bigger successes of the Chinese companies has been their ability to capture a significant section of the Android smartphone market.

The Chinese policy paid off when in 2024 Indian officials began taking a different track. In January, a top department for the promotion of industry and internal trade bureaucrat hinted that India could ease restrictions on Chinese investments if peace on the border could be achieved. Importantly, the Economic Survey tabled in Parliament during the budget session in July noted that India needed to boost its global exports and could either integrate into China’s supply chains or seek foreign direct investment (FDI) from there. It said that “focusing on FDI from China seems more promising”. The FDI route could also help arrest the trade deficit that India had with China, its top export partner.

In August, China’s Global Times reported that India had begun approving Chinese investment proposals in electronic manufacturing with relation to two companies, Luxshare and Huaqin Technologies. These, the newspaper noted, were the first such approvals in recent times. In November, Niti Aayog CEO BVR Subrahmanyam had said India should be part of the Regional Comprehensive Economic Partnership (RCEP) as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). India had pulled out of RCEP after entering negotiations in 2013, fearing that its manufacturing sector would suffer on account of China.

India’s pragmatic approach to China, which has led to full disengagement at Chinese blockade points in Ladakh, is sharply focused on promoting its self-interest. Delhi now recognises that a blanket ban approach towards China was harmful. Instead of rushing headlong in the other direction, it is carefully unrolling a new approach. For example, it is planning to ensure a clause that investments from firms with up to 10% Chinese shareholding will no longer require government approval. But, it is also planning to set up a post-investment monitoring framework that will involve tracking the activities of Chinese companies. It has also taken steps to facilitate business visas for Chinese technicians, who were needed by Indian manufacturing companies involved in PLI schemes.

India cannot be oblivious to the fact that Beijing’s industrial policies, which New Delhi is belatedly trying to emulate, have been remarkably successful and have enabled China to advance in a number of technology areas to global leadership in high-speed trains, unmanned aerial vehicles, electrical vehicles, batteries and solar technologies: China is competitive in areas like semiconductors, Artificial Intelligence, robots, machine tools, drugs, and LNG carriers.

There is another important factor here. New Delhi views its multi-alignment and multi-polar posture as the kernel of its foreign policy, one that gives it leverage to engage meaningfully with the United States, Russia, the European Union and countries of the Global South. An approach that is uniformly hostile to China only serves to undermine it. So, India, which is already a major trade partner of China and cooperates with it in institutions such as the Shanghai Cooperation Organisation, Brics, and G20, is now seeking to fine-tune its policies.

Manoj Joshi is a distinguished fellow,Observer Research Foundation, New Delhi.The views expressed are personal