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The Changing Dynamics of India-China Relations

The recent agreement between India and China to reinstate mutual patrolling rights in the Depsang Plains and Demchok areas of Ladakh marks a notable breakthrough since the 2020 border standoff. This diplomatic progress, while limited in scope—aiming to address specific Chinese transgressions rather than resolve the broader boundary dispute—comes at a strategic moment. Indian Prime Minister Modi and Chinese President Xi held their first formal discussions in five years during the BRICS summit in Russia, underscoring the significance of this development amidst ongoing geopolitical tensions.

Significance of China for India

Industrial Dependency on China

• Raw Material Dependency: In FY 2023-24, China became India’s top trading partner, with two-way trade reaching $118.4 billion (Global Trade Research Initiative), despite ongoing border tensions. India’s reliance on Chinese imports for essential industrial raw materials and intermediate goods remains high. Over 70% of India’s Active Pharmaceutical Ingredients (APIs) are sourced from China, placing the pharmaceutical industry in a particularly dependent position. In the same period, India imported electronic components worth over $12 billion from China. India also relies on imports for nearly 80% of its solar equipment, with over 60% sourced from China (Policy Circle Bureau). Current efforts to bolster domestic manufacturing are ongoing but will require years to reduce this dependency.
• Technology and Digital Infrastructure: Despite security concerns and restrictions on certain apps, Chinese technology maintains a substantial presence in India’s digital landscape. Chinese smartphone brands dominate the Indian market with a combined market share of over 75% (Counterpoint Research). Additionally, critical telecommunications equipment often includes Chinese components or technology. Emerging sectors in India, such as electric vehicles, depend heavily on Chinese battery technology and components.
• Investment and Expertise: Chinese technical expertise plays an important role in India’s industrial development, especially in infrastructure and high-speed rail systems that India aims to expand. Several Indian unicorn startups have benefited from substantial Chinese investment, crucial during their growth phases. As of 2020, over $3.5 billion in Chinese investments supported 18 Indian unicorns.
• Trade Route Dependency: India’s trade routes and regional connectivity initiatives frequently intersect with areas of Chinese influence. Southeast Asian trading partners of India maintain close economic ties with China, and China’s significant role in the Regional Comprehensive Economic Partnership (RCEP) illustrates this impact, despite India opting out. Over 55% of India’s trade traverses through the South China Sea and the Malacca Strait (Ministry of External Affairs), where China’s strategic presence influences critical maritime routes essential for Indian commerce.

Major Areas of Contention Between India and China

• Border Disputes and Territorial Claims: The 3,488-km Line of Actual Control (LAC) remains a significant flashpoint, with frequent standoffs and incidents. Since May 2020, Indian and Chinese forces have been in a standoff, following a violent clash in the Galwan Valley. China occupies approximately 38,000 sq km in Aksai Chin and claims 90,000 sq km of Arunachal Pradesh, which it refers to as South Tibet (Ministry of External Affairs). Recent satellite imagery indicates China’s construction of dual-use villages and major military infrastructure upgrades along the LAC.
• Economic Imbalances and Trade Deficit: India faces a large trade deficit with China, reaching $85 billion in 2024 (The Hindu). Over the past five years, China’s exports to India have grown at an annual rate of 9.61% (The Observatory of Economic Complexity). Despite anti-dumping measures, China often circumvents these restrictions via ASEAN intra-trade and bilateral FTAs.
• Water Resource Disputes: China controls upstream areas of significant rivers flowing into India, such as the Brahmaputra (Yarlung Tsangpo). China has constructed dams, including the large Zangmu Dam near the Bhutan-India border, with plans for the world’s largest hydroelectric project in Medog. No water-sharing agreement exists between the countries, and since the 2017 Doklam standoff, China has stopped sharing hydrological data on the Brahmaputra.
• Cyber Threats: China has been implicated in numerous cyber-attacks on Indian infrastructure. In 2022, Chinese-linked hackers allegedly targeted seven Indian power hubs. Since 2020, over 300 Chinese apps have been banned, and security concerns have led to the exclusion of Huawei and ZTE from India’s 5G infrastructure. A SentinelOne report claims the 2022 ransomware attack on AIIMS Delhi was linked to the Chinese group ChamelGang.
• Regional Influence Competition: China’s Belt and Road Initiative (BRI) investments, especially the $62 billion China-Pakistan Economic Corridor (CPEC), have challenged India’s regional influence. China has secured bases or port facilities in Pakistan, Sri Lanka, Myanmar, and the Maldives and has expanded its economic influence in Nepal, Bhutan, and Bangladesh, creating a “String of Pearls” around India. India’s response, the Necklace of Diamonds strategy, is still in early stages.
• Strategic Alliances and Regional Partnerships: China’s close military partnership with Pakistan, including nuclear technology transfers and defense support, is a significant concern for India. India’s increasing alignment with the US and its participation in the QUAD (e.g., Malabar exercises) have further strained relations with China. China has also opposed India’s oil exploration activities in Vietnam’s Exclusive Economic Zone (EEZ) and expanded its naval presence in the Indian Ocean, with submarines and research vessels docking at locations like Sri Lanka’s Hambantota Port. Approximately $200 billion of India’s trade passes through the South China Sea each year (Observer Research Foundation).
• Diplomatic and International Forums: China continues to shield Pakistan-based terrorists in UN forums, creating frustration for India. The two countries compete for influence in organizations like the SCO and BRICS, and China opposes India’s role in global governance reforms, including its membership bids for the NSG and a permanent UN Security Council seat.

What India can do to maintain balance in its relationship with china?

• Economic Diversification and Self-Reliance: India should continue to expand the Production-Linked Incentive (PLI) scheme to reduce dependency on critical imports. Prioritize the growth of domestic manufacturing capabilities in sectors like Active Pharmaceutical Ingredients (APIs), electronics, and solar equipment through initiatives such as the Semiconductor Mission, with a planned investment of $10 billion. Forge partnerships with nations like Japan, South Korea, and EU countries for technology transfer and investment in essential industries. Bolster the MSME sector to develop localized supply chains and minimize import reliance. Implement smart protectionist policies in line with WTO regulations, establish quality standards for imports, and provide incentives for domestic value addition in manufacturing.
• Strategic Military Modernization: Expedite the development of military infrastructure along the Line of Actual Control (LAC), including 73 strategic roads and advanced landing grounds. Enhance surveillance capabilities with satellite and drone technology, such as the recent acquisition of 31 Predator drones in October 2024. Improve mountain warfare capabilities through specialized training and advanced equipment. Establish quick-reaction forces and strengthen logistics support in border areas.
• Regional Leadership Enhancement: Strengthen relationships with neighboring countries through increased development aid and infrastructure projects. Expand regional initiatives like BIMSTEC and the Indian Ocean Rim Association to counteract the influence of China’s Belt and Road Initiative (BRI). Collaborate with Japan and Australia on projects like the Supply Chain Resilience Initiative to establish alternative supply networks. Promote cultural and educational exchange programs with Southeast Asian countries to deepen regional ties.
• Diplomatic Engagement Strategy: Pursue continuous dialogue through various channels while maintaining firm stances on core interests. Engage in multilateral platforms like the Shanghai Cooperation Organisation (SCO) and BRICS, while enhancing partnerships within QUAD. Build issue-based alliances with like-minded nations to tackle specific challenges. Balance relations with the US, China, and Russia to retain strategic autonomy, as demonstrated by recent successful border tension management through diplomatic engagement while maintaining trade relations.
• Economic Leverage Development: Identify and capitalize on India’s market strengths when negotiating with China. Seek alternative markets for Indian exports through Free Trade Agreements (FTAs) with the UK and EU. Establish frameworks for screening investments while fostering productive economic relations. Reinforce India’s role in global supply chains through initiatives like PM Gati Shakti. Recent successes include the redirection of global supply chains to India under the China+1 strategy and related decoupling efforts.
• Maritime Strategy Enhancement: Strengthen India’s naval presence and capabilities within the Indian Ocean Region (IOR). Accelerate the development of port infrastructure and connectivity via the Sagarmala Project. Foster maritime cooperation with QUAD and ASEAN nations, and enhance surveillance in strategic waters, including the Arabian Sea, to improve regional security.

The recent agreement between India and China to reinstate mutual patrolling rights in the Depsang Plains and Demchok is a constructive move toward stabilizing the delicate border situation. India should persist in a multi-pronged approach that integrates economic diversification, military advancement, regional leadership, and strategic diplomacy to effectively balance its relationship with China.

The End of the Blog: The Changing Dynamics of India-China Relations