A Himalayan thaw has definitely set in for Indo-China relations that had been in deep freeze due to a border standoff in April 2020. With a semblance of border peace, there is a striking improvement in bilateral ties. After a six-year hiatus, border trade is set to resume between India and Tibet through the Lipulekh Pass. So, too, is the Kailash Mansarovar pilgrimage. Less than a year after the resumption of direct flights, the scheduled seat capacity has risen 30-fold. India is also set to approve one of the largest auto-related investments of $370 million from a Chinese-linked company. Whether this blossoming relationship signifies a return to business as usual is perhaps premature to infer as dealing with China is as challenging as doing so with the US.
The challenges are essentially similar as both China and the US — the world’s most powerful economies that are vying for global dominance — use coercive geoeconomic measures to impose their will on relatively weaker economies. The dragon has absolute dominance in global manufacturing with a share of 30% that is likely to rise to 45% by 2030. Its trillion-dollar trade surpluses include advanced manufactured goods like electric vehicles (EVs), solar panels, and batteries but also low-cost goods from shoes to plastics that are subjecting manufacturing to severe pressure in both developed and developing countries. China also has global dominance in processing rare earths and is not averse to blocking shipments to its trading adversaries.
Given the differential in its economic power, China sees India only as a weaker neighbour. This constrains potentialities for cooperation, including transferring technology, although it has vast amounts of capital that can help realise India’s ambitions to become more prosperous. BusinessLine’s Ananth Krishnan has written on restrictions imposed on some types of EV batteries last year after Gotion High-Tech came under fire for announcing a deal in India with Amara Raja Energy & Mobility that involved technology transfer. Chinese automaker Chery also issued a statement on June 8 to deny that it would transfer any EV technology to Tata Motors following uproar in social media in the mainland over this deal.
This technology denial will only reinforce the dependence of these Indian companies on supplies from China and worsen the bilateral trade imbalance that accounts for 34% of India’s global trade deficit. Without collaboration for lithium-ion cell technology, Amara Raja will have to import equipment, battery cells, and other material from the mainland. Similarly, if Chery has no plans for technology transfer and the use of its platforms, Tata Motors and other EV manufacturers will import kits and vehicle-related components. The Chinese automaker’s clarification came after Tata Motors stated that it would use Chery’s platform to manufacture premium EVs in the country. Supply-related deals in the EV space will thus be in the ascendant.
All of this has a bearing on the uptick in India’s engagement with the dragon. There is no doubt that the coming together of two great neighbours represents an international public good; that it is a strategic necessity to work together. Further progress is indeed possible if both nations restart the 50-odd government-to-government dialogue mechanisms that remain stalled. As the screening mechanism for investment proposals from land bordering nations like China has been amended, it perhaps makes sense to allow investments from EV manufacturers like BYD that failed to secure approval even though it had plans to invest $1 billion and was ready to have a local partner. Not doing so only ensures that EV technology transfer will remain blocked.
A major positive in this regard is the impending approval of investment from Horse Powertrain, a hybrid-engine venture backed by China’s Zhejiang Geely Holding Group. The last major auto investment was nine years ago when state-owned SAIC Motor acquired General Motors’ plant to launch the MG Motor brand. Opening up to more investments from China — that cumulatively reached as much as $17.28 billion (seven times higher than India’s official estimates) from 2007 to 2025, according to American Enterprise Institute’s China Global Investment Tracker — ensures its greater engagement in the country. China has dominance over global supply chains. If India can plug into them with its advantages of an abundant supply of labour at highly competitive rates, it can export more and grow faster over the medium term.
However, these possibilities of cooperation will materialise only if the two Asian powers perceive themselves as equals, which they are not. Despite signs of a thaw in relations, the asymmetries can be addressed over the long haul by narrowing the economic power differential. Both nations can then fulfil the promise of an Asian century as they cooperate and compete with one another. Although India is the world’s fifth-largest economy, China is six times larger as the second-largest economy. This is reflected in relative military strength, with India in a disadvantageous position to resolve the border issue 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 of dealing with China and the US and their use of coercive geoeconomic measures.
The author is an economics and business commentator based in New Delhi.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.