While positive, it is unlikely to bring about a significant shift in their trade and economic ties, it said, adding that achieving a balanced and resilient economic relationship will require sustained efforts to address the underlying trade imbalances and reliance on Chinese imports.
Prime Minister Narendra Modi and Chinese President Xi Jinping held their first bilateral talks since 2019 on Wednesday on the sidelines of the 16th BRICS Summit in Russia after India on Monday announced it has reached an agreement with China on patrolling along the Line of Actual Control (LAC) in eastern Ladakh, ending the four-year-long military standoff and a move seen as a confidence-building measure aimed at reducing military presence in the region.“The recent meeting between Modi and Xi may signal a diplomatic breakthrough, but it is unlikely to dramatically alter the economic and trade dynamics between India and China in the near future,” said Ajay Srivastava, founder GTRI.
Even before the Galwan Valley clash in 2020, China was not a major investor in India. From April 2000 to March 2024, China’s cumulative investments in India amounted to just $2.5 billion, a modest figure compared to investments from countries like the US or Japan.
Through its Press Note 3 in 2020, India imposed new rules requiring government approval for any Chinese investment, effectively slowing down the inflow of funds.
“However, it is unrealistic to expect a surge in Chinese investments, even if the restrictions are eased. China has historically shown limited interest in making substantial investments in India, particularly in sectors that require technology transfer or strategic collaboration,” he said.
Trade dynamics between the two countries remain largely unaffected by political developments, driven by private businesses rather than government-led initiatives.
“India’s low exports and high reliance on Chinese imports, especially in industrial sectors, are structural issues that will require long-term policy efforts to address,” he said.
In FY20, India’s exports to China were $16.61 billion, slightly up from $16.65 billion by FY24 with raw materials like iron ore, marine products, cotton, and certain chemicals being the top items of export.
However, India’s imports from China surged to $101.74 billion from $65.26 billion in the period.
Over the last 15 years, China’s share of India’s total industrial imports has grown significantly to 30% from 21% and Beijing
now dominates across multiple key sectors of India’s imports. Electronics, telecom, and electrical products from China are 38.7% of India’s global imports, machinery at 38.5%, chemicals and Pharmaceuticals at 28.7%, textiles and clothing at 41.5%, automobiles at 23.2%.
As per the think tank, for India, reducing its trade deficit with China and encouraging more balanced economic relations will require a multifaceted approach, including strengthening domestic manufacturing capabilities, diversifying its import sources, and promoting export growth.
Moving forward, Chinese investments may flow into labor-intensive industries like garments or shoes, where local manufacturing might be further undermined. In high-tech sectors like electronics and electric vehicles, Chinese companies may focus on assembling products in India, with up to 90% of components still being imported from China. This would only deepen India’s dependence on Chinese supply chains.
“As Chinese companies continue to expand in India, particularly in sectors like energy, electronics, and transportation, India’s dependence on Chinese imports is likely to grow further,” GTRI said, adding that this raises concerns about India’s economic resilience and the risks posed by over-reliance on a single trading partner, especially given the fragile political relationship between the two countries.