JRI Research Journal;Vol.9 No.10,
Assessing India’s Moves to Improve Economic Ties with China
Shotaro Kumagai
Summary
Since the second half of 2024, India has been moving to improve its economic relations with China. The following are the key points for understanding this development and assessing its potential impact on the Indian economy.
Background:Two factors stand out as driving India’s push to improve economic ties with China. First, as wariness toward the “America First” posture of the second Trump administration has deepened, India has felt a growing need to strengthen its negotiating leverage with the United States. Second, there is a growing recognition within the Indian government that its stringent trade and investment restrictions on China have, contrary to the government's original expectations, constrained the development of domestic manufacturing.
Impact of India’s Easing of China-Related Restrictions:Among India’s measures to ease China-related restrictions, the relaxation of rules on inward foreign direct investment has attracted particularly strong attention. While wholly Chinese-owned entry into India remains subject to a range of restrictions, the recent regulatory changes have generated growing momentum for Chinese companies to enter the Indian market indirectly, through joint ventures with local firms or equity investments in global companies. Going forward, close attention should be paid to the possibility that expanded entry of price-competitive Chinese companies could intensify competition in the Indian marketplace.
Sustainability of the Improvement in Economic Relations:As uncertainty over U.S.- India relations continues, India is likely to pursue closer economic ties with China in the short term. However, India-China economic relations should not be expected to expand in a straight line. Rather, they are likely to experience repeated ups and downs, shaped by factors such as (1) developments in the border disputes with China, (2) the impact of the recent easing of China-related restrictions on the Indian economy, and (3) the direction of U.S.- India relations under the next U.S. administration.