A New Dawn in Indo-China Relations
The recent thaw in Indo-China relations marks a significant shift from the deep freeze that followed the border standoff in April 2020. With a renewed sense of border peace, there has been a noticeable improvement in bilateral ties. One of the most promising developments is the resumption of border trade between India and Tibet through the Lipulekh Pass after a six-year hiatus. Similarly, the Kailash Mansarovar pilgrimage, which had been on hold, is also set to resume.
Less than a year after the resumption of direct flights, the scheduled seat capacity has increased by an impressive 30-fold. This indicates a growing interest in cross-border travel and cultural exchanges. Moreover, India is preparing to approve one of the largest auto-related investments of $370 million from a Chinese-linked company. While this signals a positive step towards economic cooperation, it remains premature to conclude that this heralds a return to business as usual.
Challenges in the Relationship
Dealing with China, much like dealing with the US, presents its own set of challenges. Both countries are the world’s most powerful economies, vying for global dominance. They employ coercive geoeconomic measures to assert their influence over relatively weaker economies. China, in particular, holds absolute dominance in global manufacturing, with a 30% share that is projected to rise to 45% by 2030. Its trade surpluses include advanced manufactured goods such as electric vehicles (EVs), solar panels, and batteries, as well as low-cost items like shoes and plastics, which are putting pressure on manufacturing sectors worldwide.
China's global dominance extends to the processing of rare earths, and it is not hesitant to block shipments to its trading adversaries. This dynamic underscores the need for careful navigation in bilateral relations.
Economic Dynamics and Technology Transfer
Given the economic disparity, China views India as a weaker neighbor, which limits potential areas for cooperation, including technology transfer. However, China possesses vast capital that could support India's ambitions to become more prosperous. Recent events highlight the complexities of this relationship. For instance, restrictions were imposed on certain types of EV batteries following a deal between Gotion High-Tech and Amara Raja Energy & Mobility involving technology transfer. Similarly, Chery issued a statement denying any intention to transfer EV technology to Tata Motors, amid concerns raised on social media in China.
This reluctance to transfer technology may reinforce Indian companies' dependence on Chinese supplies, exacerbating the bilateral trade imbalance, which accounts for 34% of India's global trade deficit. Without collaboration in lithium-ion cell technology, Amara Raja will have to import equipment and battery cells from China. Likewise, if Chery does not plan to transfer technology, Tata Motors and other EV manufacturers will rely on imported kits and components.
The Role of Investment and Supply Chains
The upcoming approval of investment from Horse Powertrain, a hybrid-engine venture backed by China’s Zhejiang Geely Holding Group, is a positive development. This follows the last major auto investment nine years ago when SAIC Motor acquired General Motors’ plant to launch the MG Motor brand. Opening up to more investments from China, which totaled as much as $17.28 billion from 2007 to 2025, according to the American Enterprise Institute’s China Global Investment Tracker, can enhance engagement between the two nations.
China's dominance over global supply chains offers opportunities for India to leverage its abundant labor force at competitive rates. This could lead to increased exports and faster growth in the medium term. However, these possibilities depend on both nations perceiving themselves as equals, which they currently are not.
Strategic Necessity and Future Prospects
Despite the signs of a thaw in relations, the asymmetries between the two Asian powers must be addressed over the long haul. By narrowing the economic power differential, both nations can fulfill the promise of an Asian century through cooperation and competition. While India is the world's fifth-largest economy, China is six times larger as the second-largest economy. This is reflected in military strength, where India faces a disadvantage in resolving border issues through force.
The upshot is that India must steadily build up its economy through rapid growth. This will enable it to cope with the similar challenges posed by China and the US and their use of coercive geoeconomic measures.
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