While there has been a gradual reconciliation in India and China’s trade ties since the blockade triggered by 2020 border clashes, pressure from New Delhi’s business community for goods and specialised manpower from across the border, and its ambitions of becoming a manufacturing hub have played a big role in the progressive shift. The easing also helps China. With its economy slowing down, domestic consumption throttled, and regions such as the European Union and the United States pushing protectionist tariffs against the country, Beijing’s trade relationship with India — which has a big domestic market — becomes all the more important for them. Relations between the two countries are still far from their pre-2020 reality. While there are signs of easing of ties between the two countries, India has indicated it will not back down from some aggressive non-tariff barriers it has put in place to counter the influx of Chinese-made goods in the country. Government officials indicated there may not be any change in that strategy. Meanwhile, India’s exports to China have remained stagnant while imports have soared. Last month, External Affairs Minister S Jaishankar said Indian goods do not have the same market access in China as Chinese products enjoy in India. While Chinese imports surpassed $100 billion in FY24, India’s exports barely crossed $16 billion in the last financial year and have remained at that level for a long time. A working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) stated that exporters face a range of non-tariff barriers in China, limiting market access for Indian exports, particularly in agricultural and pharmaceutical products. While China is actively seeking to prevent a loss of investment due to its domestic housing crisis, combined with Western multinationals’ goal of de-risking their supply chains by seeking alternative destinations under the ‘China plus one’ policy, economists within the government have also acknowledged that decoupling from China is not easy for India or the rest of the world and India faces a choice between Chinese investment and Chinese imports. A senior government official said there could be a gradual opening up to China, primarily to make it easier for companies from the mainland to invest in New Delhi along with domestic partners. “Joint ventures between Chinese and Indian companies, where the former is a minority shareholder, is something the government would be very open to,” the official said. The Economic Survey 2023-24 had also called for India to encourage investments from China, while discouraging imports of finished goods, where the scope of local value addition is very little. “Where we see China, or any other country, dumping goods in India, causing injury to our domestic industry, then, we raise duties, impose anti-dumping duties, and introduce safeguard duties to protect our industry. But wherever we need their goods, then we facilitate that,” another senior government official said, when asked what could change in terms of the two nations’ trade ties. Some of India’s recent persuasions have hinted at the middle ground New Delhi would be comfortable in taking in terms of Chinese investments. Earlier this year, Chinese state-owned SAIC Motors, which owned a controlling stake in MG Motors, divested from the company and sold it to an Indian group of investors led by the JSW Group who now collectively own 51 per cent of the automaker. Chinese apparel-maker Shein, which was banned by New Delhi in 2020, is said to make a second entry in the country after licensing its brand to Reliance Retail. Operations of the venture though will be managed by Reliance. But a big part of the change has been driven by lobbying by businesses in the country, who believe any Chinese alternative in certain sectors is either too expensive, or not of as good quality. This also extends not just to raw materials and equipment, but also human resources. After India imposed strict visa restrictions on Chinese nationals in the wake of the border crisis, there has been a gradual relaxation in its stance in terms of issuing visas for certain sectors. This was because businesses complained that they were struggling to operate or maintain equipment without help from technicians from China. While the electronics sector remains a touchy issue for India, where it has ambitions of becoming a major manufacturing hub, there is also acknowledgement that those dreams would be difficult to materialise without materials or manpower from China. And in this space too, there are winds of change. An inter-ministerial panel earlier this year cleared a joint venture between Bhagwati Products (Micromax) and Huaqin Technology in which the Chinese company will own a minority stake. Some of Apple’s China-headquartered suppliers have also opened operations in India. And most importantly, India depends on China in a big way for component imports that are needed to assemble finished electronics in the country. “The near term strategy is to allow Chinese suppliers and companies to set up shop in the country, but in a partnership with an Indian partner. We would like that the Chinese company is not a majority shareholder in the entity, but those decisions will be made on a case-by-case basis,” one official said. As such, some sectors, which are considered non-sensitive, could be opened up for Chinese investments first. However, restrictions placed on Chinese investments in the telecom space are not expected to change anytime soon. With India prioritising investments from Beijing that could help its domestic manufacturing ambitions, it is unlikely that some of the decisions of the past – chief among which is the blocking of the popular short video app TikTok — would come up for a review anytime soon, the official said. While in some sectors India can’t do without Chinese imports, it has taken an aggressive stance in some other sectors. In a bid to limit imports from China, India has rapidly increased anti-dumping duties on Chinese products and has also ramped up quality control orders, which effectively block the import and sale of items in the country without Bureau of Indian Standards certification. India has stepped up anti-subsidy measures against China, with over 30 anti-dumping investigations in 2024 alone – the highest number against a single country. Products under scrutiny include industrial items such as plastic processing machines, vacuum-insulated flasks, welded stainless steel pipes and tubes, soft ferrite cores, and industrial laser machines, among others. Industries seeking multiple extensions of anti-dumping duties have argued that China is not a market economy and employs predatory methods to eliminate competition, harming Indian businesses. New Delhi is increasing its presence in the Indian Ocean to limit Chinese influence in the region. As part of its strategy, a trade agreement is in the works with the Maldives. A Commerce Ministry official said that geopolitics has increasingly begun to impact India’s trade strategy, citing the free trade agreement (FTA) being discussed with the Maldives, which could take precedence over others. “The FTA with the Maldives may not make much economic sense for India, as the Maldives is not a large market, but India will sign a deal due to the geopolitical importance of the Maldives,” the official said.
