From iPhones to borders: India’s real China dilemma

India-China relations have recently shown signs of improvement and stabilisation. Earlier this month, Chinese President Xi Jinping was in New Delhi for the BRICS annual summit, where he also held a bilateral meeting with Indian Prime Minister Narendra Modi. It was Xi’s first visit to India in seven years, since he last travelled to the country for an informal summit with Modi in Mamallapuram in October 2019.

Several months later, in 2020, the Chinese People’s Liberation Army (PLA)’s manoeuvres in Ladakh led to a standoff between the armies of the two countries at several friction points along the Line of Actual Control (LAC), one of which — Galwan — even witnessed violent clashes resulting in loss of life on both sides. 

Hard to rekindle trust

More than six years later, the two sides completed disengagement — the withdrawal of troops from the eyeball-to-eyeball standoff at all friction points — by October 2024. But de-escalation, involving the withdrawal of troops, heavy equipment and weapons from forward positions, and de-induction, or the return of excess troops to their bases or peacetime locations, remain elusive. The protracted process shows how difficult it has been to rebuild trust in relations since. Inevitably, the instability along the LAC spilled over to other aspects of bilateral relations, including trade and commerce, investments, and people-to-people connections.

The impasse reflected differing positions on how to restore the bilateral relationship. India’s position was that peace, tranquillity and stability along the LAC were necessary to rebuild trust and create the conditions for cooperation in other areas. China, by contrast, sought to prevent the boundary dispute from holding back the broader relationship, arguing that the two sides should build trust through cooperation in other areas to create momentum for dialogue on the LAC.

Stabilising three fronts: trade, investment and boundary 

Developments since the consensus reached in Kazan in October 2024 at the sidelines of the 16th BRICS summit, driven perhaps by an unmoving stalemate at the LAC and the anxiety around Trump’s re-election in 2025, indicate that the two sides agreed to parallel discussions on both fronts. The Special Representative (SR) talks on the border resumed after a five-year hiatus, and the two sides have held three dialogues since. Earlier this year, India loosened restrictions on Chinese investments and also allowed subsidiaries of Chinese firms to bid for projects in the power sector. 

The efforts towards stabilisation do not indicate a reset in ties, however. Relations remain marked by deep distrust and divergent worldviews. Yet, there is a growing realisation that prolonged disruption is not in anyone’s interest. For India, given the asymmetry with China, any instability at the LAC exacts a relatively higher cost, thereby undermining developmental needs. For China, the asymmetry it enjoys vis-à-vis India isn’t wide enough to dictate terms along the LAC. Moreover, the global disorder and turbulence — driven by military campaigns and the weaponisation of trade and commerce — have already pushed up the cost of development around the world. It is thus only sensible to calm the fronts where it is possible.

For this relationship to remain stable, and to engender trust, the two countries require a working mechanism on three fronts: trade, investment and boundary. 

Trade

Despite the troubled relations, bilateral trade has blossomed during this period. And with it, India’s trade deficit vis-à-vis China also grew at an exponential pace. Total trade in the last financial year stood at around US$150 billion, with over a hundred billion-dollar surplus in China’s favour.

The turbulent relations, however, triggered widespread concerns regarding dependence and vulnerability arising from asymmetric trade. It was only logical that even certain sections of the business community rallied behind the veil of national and security interests to call for import substitution and self-sufficiency. At times, the government did succumb to such pressures — especially when it planned restrictions on the import of electronic items in 2024.   

The concerns were not entirely baseless either. The period since late 2024 has been marked by Beijing’s recurrent coercive and restrictive measures — formal and informal — against India. These include blocking exports of tunnel boring machines, semiconductor equipment, fertilisers, critical minerals and rare earths, as well as restricting the travel of Foxconn engineers.

However, while concerns regarding strategic vulnerability arising from dependence on China are legitimate, a knee-jerk reaction that pushes for blanket import substitution or decoupling is not an answer. Apart from larger economic gains from trading with China, Indian manufacturers and exporters rely on Chinese-origin inputs to compete in the global markets. For instance, India’s rise as one of the leading manufacturers of Apple’s iPhones is contingent on supplies from China. 

Thus, for India, there is a need to acknowledge that dependence is a two-way street, and not all cases of dependence are a source of vulnerability, let alone strategic or critical vulnerability. 

Investment

Investments, particularly Chinese investment in India, have also drawn significant attention in India-China ties since relations nosedived. Chinese investment in India was not massive anyway before 2020. Later, the fear of opportunistic takeovers by Chinese investors led India to impose broad-based restrictions on Chinese capital in April 2020. The subsequent clash in Galwan and the subsequent standoff in Ladakh further hardened the perceptions relating to Chinese investments in India. 

In the period that followed, as the calls for de-risking grew and India, among others, emerged as one of the alternative destinations, China began to show signs of anxiety. Of late, Beijing has adopted an increasingly protective stance on technology and capability transfer to competing countries. China is not keen on vacating space in even traditional industries as it climbs up the value chain in high-end manufacturing. Further, within a span of six months in 2026, China has unveiled a series of legal tools to discourage any flight of goods, capital and technology in areas which may compromise its dominance. The newly issued Decree 837, the State Council Regulations on Overseas Investment, sets out two categories where outbound investments are either prohibited or restricted. 

Even before the decree took effect, the intent on the part of China was clear. Indian conglomerate Reliance was in talks with China’s Xiamen Hithium Energy Storage Technology to license its cell technology and produce batteries in India. However, Hithium withdrew from the proposed partnership amid Beijing’s informal curbs on overseas technology transfers in key sectors.  

There are mutual sensitivities on both sides. India fears that Chinese presence in certain sectors can become a source of strategic vulnerability. China’s apprehensions stem from the fear of creating a rival in India. Delhi can draw its red lines, and Beijing can draw its red lines too.

Outside these red lines, there exists a space for cooperation. The solution perhaps lies in creating a dual negative list, with each side listing its no-go sectors and opening investment in the rest. The fact that there is a discussion on renewed economic engagement — evident in the relaxation of Chinese investments in India earlier this year — without either side shedding its strategic concerns suggests that the two could be arriving at the above-mentioned solution, even though it remains unsaid and informal.

Boundary

Notwithstanding the progress on commerce, history has shown, and the post-Galwan period has further confirmed, that regardless of what China believes, peace, tranquillity and stability along the LAC are a necessary prerequisite for overall stable relations, which cannot be neglected, stalled or shelved for a later time. The dialogue needs to continue even if progress is slow. 

The boundary question involves two layers — the International Border (IB) and the LAC. One can understand the hesitation on both sides to resolve the IB, as an agreement would require giving up territorial claims in some areas. 

But a clarification over the LAC — the line marking the territory under each side’s current control — does not require giving up rival claims on territory, and thus is politically achievable and justifiable. Differing perceptions of the LAC have resulted in numerous incursions, face-offs and conflicts along the boundary. India has long insisted on the exchange of maps to clarify perceptions of the LAC. The fact that China has resolved land-boundary disputes with 12 of its 14 neighbours, leaving India and Bhutan as the two exceptions, suggests that the unresolved boundary with India is not simply a technical problem. The two sides have also failed to clarify their respective perceptions of the LAC, a process that China subsequently showed little willingness to pursue.

In this regard, the decision to set up an Expert Group under the Working Mechanism for Consultation and Coordination (WMCC) at the 24th round of SR talks in August 2025 to explore an “early harvest in boundary delimitation in the India-China border areas” was a welcome decision. The 25th round of SR talks reiterated the commitment by stressing an “early and substantial harvest” in the boundary delimitation. However, the fact that no real development has been made public between the 24th and the 25th round of SR talks indicates that progress has been difficult and slow. It is expected to remain that way for the reasons discussed above. 

Nevertheless, while it is true that the overall development of the relationship cannot be held hostage to the boundary situation in perpetuity, China, too, has to bear responsibility to rebuild and infuse trust in ties. How Beijing acts — both on the border and in commerce — will determine the longevity of this new normal.

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