India-China Relations: Trade Imbalance Amidst Border Tensions and Prospects for Cooperation
Despite the "Lal Aankh" (लाल आंख) rhetoric, in 2022, India's exports to China were $17.48 billion, while imports from China soared to $118.5 billion. The two Asian Giants need to bury the hatchet.
Historical Context
"They are not good, they are not normal right now," the External Affairs Minister S Jaishankar stated today, taking about the current diplomatic relations between India and China during a Quad meeting in Japan. This prompted us to present a succinct but comprehensive account of the bilateral relations, reflecting not only India’s perspectives but also China’s concerns, along with a toolkit to improve the relations going forward.
The relationship between India and China has been shaped by a blend of cooperation and conflict over the years. The Panchsheel Treaty of 1954 laid the groundwork for peaceful coexistence, advocating principles like mutual respect, non-aggression, and mutual benefit. However, the Sino-Indian War of 1962 and subsequent border disputes strained these ideals. The presence of the Dalai Lama and the Tibetan government-in-exile in India since 1959 has been a continuous point of contention for China.
Key Developments Since 2014
a.) High-Level Summits
The last decade has seen several high-level interactions aimed at improving bilateral ties. Prime Minister Narendra Modi and President Xi Jinping have held multiple summits, notably in Wuhan (2018) and Mamallapuram (2019). These informal meetings sought to reset relations, but the violent clashes in Galwan Valley in 2020 significantly undermined these efforts, casting a long shadow over diplomatic progress.
b.) Border Tensions
Border tensions have been a recurring theme, with significant incidents such as the 73-day Doklam standoff in 2017 and the deadly Galwan Valley clashes in 2020. Despite numerous rounds of military and diplomatic talks, a comprehensive resolution remains elusive. These incidents have severely impacted mutual trust and highlighted the fragility of peace along the Line of Actual Control (LAC).
c.) Trade Relations
Despite geopolitical frictions, economic engagement between India and China has flourished, albeit with a stark trade imbalance. In 2022, India's exports to China amounted to $17.48 billion, while imports from China soared to $118.5 billion. This imbalance has prompted India to take steps to reduce its dependence on Chinese goods and scrutinize Chinese investments more closely.
Multilateral Forums
India and China collaborate in several multilateral forums, including BRICS and the Shanghai Cooperation Organisation (SCO). However, their divergent views on various issues often surface, as evidenced by India's strategic absences and policy disagreements in these platforms.
a.) Regional Dynamics
China's Belt and Road Initiative (BRI) has significantly bolstered its influence in South Asia, with major investments in Nepal, Sri Lanka, and Pakistan. Projects like the China-Pakistan Economic Corridor (CPEC) and investments in Sri Lankan ports have heightened India's strategic concerns, leading to a more competitive regional environment.
b.) Construction Activities
Recent satellite imagery has revealed extensive Chinese construction activities in contested areas along the LAC. These developments, including new military bases and infrastructure, have exacerbated tensions and underscored the strategic rivalry in these regions.
Irritants from China’s Standpoint
India's Involvement in the Quad
India's strategic involvement in the Quad—comprising the United States, Japan, Australia, and India—has been a significant point of contention with China. Beijing perceives the Quad as a direct challenge to its influence in the Indo-Pacific region. Chinese officials have likened the Quad to an "Asian NATO," accusing it of fostering "bloc confrontation" . The growing cooperation among Quad members, particularly in areas like maritime security and technology, has heightened Beijing's concerns . This strategic alignment underscores India's commitment to a rules-based order in the Indo-Pacific, which is seen as countering China's expansive maritime claims and assertive behavior in the region.
India's Actions Against Chinese Companies
In addition to its strategic moves in the Indo-Pacific, India has taken significant economic actions against Chinese interests within its borders. The 2020 ban on TikTok and numerous other Chinese apps was a major blow to Chinese tech companies, affecting around 200 million Indian users . This ban was perceived as a direct response to border tensions and was seen by China as part of a broader anti-China sentiment in India .
Furthermore, recent raids by Indian authorities on Chinese companies have exacerbated tensions. The Income Tax department's raids on Haier, a Chinese home appliance company, for suspected tax evasion, and the Enforcement Directorate's actions against Chinese-backed fintech firms for potential money laundering, reflect India's growing suspicion of Chinese economic activities . The ongoing crackdown on Indian entities supplying fake directors to Chinese shell companies further demonstrates India's assertive stance.
China's response to these actions has included diplomatic protests, economic retaliation, and increased military pressure along the border. However, India's assertive measures, especially its active participation in the Quad, have led some Chinese analysts to advocate for a more nuanced approach to prevent further alienation of India from China .
India-Taiwan Relations Amidst the "One China" Policy
India does not have formal diplomatic relations with Taiwan, as it officially adheres to the "One China" policy. However, India and Taiwan maintain unofficial relations through representative offices in each other's capitals: the India-Taipei Association in Taipei and the Taipei Economic and Cultural Center in New Delhi. Despite the absence of formal diplomatic ties, India-Taiwan relations have been growing, particularly in economic and technological spheres. In 2022, bilateral trade between India and Taiwan reached $10.1 billion, with India exporting $2.98 billion to Taiwan and importing $3.54 billion. Taiwanese foreign direct investment (FDI) in India has also surged, reaching $665 million in the five years leading up to 2023, compared to $277 million in the decade from 2006 to 2017. There is notable collaboration in technology, especially in semiconductors, with Taiwanese companies like Foxconn investing in India's electronics manufacturing sector.
Chinese Unease as India and Taiwan Cosy Up
China views India's engagement with Taiwan with concern and unease, seeing it as a challenge to its "One China" policy. This growing rapport is viewed within the broader geopolitical context of India's alignment with the US and its allies in the Indo-Pacific, including through forums like the Quad. There have been instances of China allegedly spreading disinformation about India-Taiwan relations, such as exaggerating the number of Indian workers expected to enter Taiwan under a recent labor agreement. Ironically, China's aggressive behavior towards both India and Taiwan has inadvertently pushed the two closer together, as both seek to reduce their economic dependence on China. China continues to exert diplomatic pressure on India regarding its engagement with Taiwan, although India has not publicly reiterated its "One China" policy for over a decade. China is also likely concerned about the potential shift of supply chains from China to India, as Taiwanese companies seek to diversify their manufacturing bases.
Current State of Relations
As of 2024, the relationship between India and China remains fraught with unresolved border disputes and strategic competition. Nevertheless, there are ongoing efforts to manage these differences:
Diplomatic Engagement: In July 2024, foreign ministers from both countries agreed to intensify efforts to resolve border issues.
Economic Interactions: Despite political tensions, trade continues to be substantial, reflecting deep economic interdependencies.
Military and Diplomatic Dialogues: Both nations are working to prevent border incidents from escalating while maintaining their respective strategic postures.
Potential Measures to Improve Relations
Sustained Diplomatic Dialogue
A continuous and focused diplomatic dialogue is essential to address the core issues, primarily the border disputes. Building trust through consistent communication can lay the groundwork for long-term peace.
Economic Cooperation
Enhancing economic cooperation in sectors where both countries can benefit mutually is crucial. Addressing the trade imbalance by encouraging balanced trade practices and exploring new areas of economic collaboration can foster better ties.
People-to-People Exchanges
Increased cultural and educational exchanges can help bridge the gap between the two nations, fostering mutual understanding and respect at the grassroots level.
Global Cooperation
Collaborating on global issues such as climate change, pandemic response, and sustainable development can provide common ground for both nations to work together constructively.
Confidence-Building Measures
Implementing confidence-building measures in disputed areas can help de-escalate tensions. Establishing clear communication protocols to handle border incidents can prevent misunderstandings and conflicts.
Multilateral Engagement
Engaging constructively in multilateral forums can help both nations find common ground on regional and global issues. This engagement can also serve as a platform to address bilateral concerns within a broader international framework.
Looking Forward: Cautious Optimism for a Harmonious Future
While India-China relations face significant challenges, there is a mutual recognition of the need for stability and cooperation. The future path will likely involve a delicate balance of asserting national interests while identifying and nurturing areas of mutual benefit. The two neighbouring Asian giants have everything to gain and nothing to lose if they can foster a harmonious and mutually beneficial bilateral relationship. As Premier Zhou Enlai used to tell Pandit Nehru, both nations have been victims of colonial imperialism for centuries. Having shed the yoke of foreign rule, there is no reason why a better relationship isn't possible, especially since India has already recognised Tibet as an integral part of China. However, the 1962 betrayal by China and recent border clashes have soured relations and created a climate of mistrust. Nevertheless, in an increasingly multipolar world, a cautious optimism is warranted as both nations navigate this complex relationship, striving for harmonious coexistence despite their differences.
Citations
Historical Evaluation of China’s India Policy - Carnegie Endowment
China’s Engagement with Smaller South Asian Countries - USIP
Emerging Great Game: China, India, America Engagement - Stimson
India-China Relations - Rajagopalan Analysis - ChinaPower CSIS
Crackdown on Indian Entities Supplying Fake Directors - Economic Times
India-China Relations: Analysis and Commentary - The Defense Post