In October 2024, India and China reached an agreement that deescalated tensions along their bilateral border that had been ongoing since April 2020. While the agreement may not by itself have resolved the root causes of the issues between the two countries, it does provide an opportunity for a reset in economic ties. In the months following the agreement, New Delhi and Beijing have engaged in a series of diplomatic meetings aimed at economic normalization. In the context of the change in government in Washington, economic cooperation has assumed greater significance for both countries. For India in particular, clear-eyed economic cooperation with China could prove vital in terms of improving its domestic competitiveness.
A Careful Thaw in Relations
While specific details of the October 2024 agreement have not been officially revealed, media reports suggest that the two countries agreed to return to patrolling in its pre-2020 form, resuming patrolling in Depsang, keeping the patrol parties small in number, and coordinating their patrols more effectively. In a sign of improved conditions, the Indian government has opened Demchok—which was among the two main friction points of the 2020 border row with China, along with Depsang—to civilian visitors.
Dialogue between the two countries appears to have improved in the months following the agreement. Soon after the election win of Donald Trump to a second non-consecutive term as U.S. president, China invited Indian National Security Adviser Ajit Doval to Beijing for talks. Doval was granted a meeting with Chinese Vice President Han Zheng — a development that some scholars have regarded as “an unusual move and a gesture of goodwill” from Beijing. Shortly after this trip, the Indian foreign secretary visited Beijing in January. During this visit, the two countries agreed to take appropriate measures to further facilitate people-to-people exchanges, including media and think-tank interactions, and agreed in principle to resume direct air services. They also agreed to hold an early meeting of the India-China Expert Level Mechanism to discuss resumption in cooperation pertaining to trans-border rivers.
In the context of the change in government in Washington, economic cooperation has assumed greater significance for both countries. For India in particular, clear-eyed economic cooperation with China could prove vital in terms of improving its domestic competitiveness.
The 2024 agreement and subsequent normalization between China and India show how Sino-Indian diplomacy has bucked the global trend of conflict and diplomatic breakdown in the four years since Galwan. The proliferation of conflicts and disputes across the world has created an inflection point in global geopolitics—often leading to a complete breakdown in dialogue between warring parties. Sino-Indian relations were on the verge of being swept away by this tide after the 2020 Galwan clashes. Yet, the two nations have managed to pull back the situation through patient, incremental, and rigorous civilian-military negotiations.
Equilibrium and Trust
To be sure, the recent agreement has not erased all causes for skepticism. Trust between the two countries remains complicated, owing to historical misgivings since the border war of 1962 and the more recent negative memory of the 2020 clashes. However, history is riddled with instances of cooperation between countries who never trusted each other. At least for now, the two governments appear to be committed to the roadmap that they have jointly negotiated.
In order to build on the recent thaw, China and India will need to work to find common ground and an equilibrium on their strategic trajectories and objectives. In the policy context, the concept of “strategic equilibrium” originates from the work of the Nobel Prize winning economist Thomas Schelling. In his work, The Strategy of Conflict, Schelling postulated that nations negotiate even under information asymmetry or in the absence of trust in order to reach an “equilibrium.” For India and China, this process must account for the two countries’ strategic aspirations. New Delhi seeks Chinese recognition of India as a pole in a fair and equitable, multipolar Asia within a multipolar world. Meanwhile, Beijing expects New Delhi to eschew policies that it would regard as amounting to an overt containment of China’s rise.
A Strategic Approach to Economic Cooperation
The key impetus behind the normalization in ties between China and India appears to be economic. During the Indian foreign secretary’s visit to Beijing in January, the two countries agreed to work toward fostering transparency and predictability in economic policies, including trade. Economic relations between India and China had suffered in the wake of the pandemic and the Galwan clashes: air travel was halted, India had banned Chinese apps, and New Delhi had begun screening Chinese investments and Chinese companies in India.
Stability in economic ties has now become especially critical to both India and China in the context of President Trump’s tariff wars. Since returning to power, Trump has threatened export controls and 20 percent tariffs on China, and reciprocal tariffs and immigration controls on India, whom he has labeled a “tariff king”. In this context, India-China bilateral trade has assumed greater importance. Between 2018 and 2022, the India-China trade corridor was the fifth fastest growing corridor in the world. According to the Chinese ambassador to India, in the last financial year, Indian exports in pepper, iron ore, and cotton yarn to China recorded growth rates of 17 percent, 160 percent, and 240 percent respectively.
The two economies have several complementarities waiting to be leveraged. India has a competitive edge in IT, software, and biomedicine, while China is seeing rapid expansion in electronic manufacturing and emerging industries. The recent success of Deepseek demonstrates how cost-effective Chinese AI solutions could potentially drive Indian adaptation, thereby further bringing down the cost of data centers and computing in India. Similarly, China also possesses rich experience in infrastructure development, which India needs. While sectors such as AI and infrastructure are politically sensitive given their strategic and national security implications, India must still engage with Chinese expertise in these areas, at least on the civilian side and in the initial stages, in order to grow its own capabilities. Likely in recognition of this, India recently decided to expedite visas issued to Chinese technicians for the purpose of machine installation, repair, and training of Indian workers.
On the flip side, there are certainly several fronts of economic competition between the two countries. India hopes to grow its own manufacturing sector by exploiting the China Plus One strategy being pursued by global investors—a business strategy that involves diversifying supply chains by expanding manufacturing and sourcing operations outside of China. New Delhi also hopes to catch up with Beijing in the competition around fourth generation technologies such as AI, quantum computing, electronic vehicles, and solar-wafer technologies, and resources such as semiconductors and critical minerals.
Much like other capitals around the world, New Delhi is having a robust debate on how to balance the national security versus economic considerations of its approach to China. The key is to insulate areas of strategic competition from broader economic relations with China, which are essential to India’s growth in the present international context. Many of China’s strategic competitors have pursued a “small yard, high fence” approach and placed strict restrictions on a small number of technologies with significant military potential while maintaining normal economic exchange in other areas. This approach has shielded most of the world’s trade with China. As a consequence, China registered a trade surplus of USD $1 trillion in 2024. For India too, it is important to maintain this selective strategic approach rather than blocking trade across all sectors.
On the whole, New Delhi should welcome Chinese companies who are willing to do business in India. The national security lens should be applied with caution and on a case-by-case basis rather than to scrutinize the entire investment ecosystem. Overregulation may only lead to a further diminished economic relationship. However, being the larger economy, China will have to drive the relationship in terms of proactive engagement since it has a greater share and leverage over the global economy. Trilateral cooperation, especially in South Asia, can be explored in the service of long-term development objectives.
Economic Cooperation for Greater Indian Competitiveness
As the Munich Security Conference Report 2025 rightly points out on a multipolar world, “On the one hand, power is shifting toward a larger number of actors who have the ability to influence key global issues. On the other hand, the world is experiencing increasing polarization both between and within many states, which is hampering joint approaches to global crises and threats.”
If India and China are to help in depolarizing the world while assisting a trend towards a multipolar order, they will need to work with partners in the West and the non-West. For that, they would first need a functional and stable bilateral relationship.
If India and China are to help in depolarizing the world while assisting a trend towards a multipolar order, they will need to work with partners in the West and the non-West. For that, they would first need a functional and stable bilateral relationship. The United States is insulating itself while encouraging U.S.-centric supply chains. For India, a choice between China and the United States is only relevant at the geopolitical or strategic level. However, on the economic front, New Delhi needs to pursue greater integration with both Western and non-Western economic frameworks to create opportunities for its own domestic industries. China’s technology landscape is growing rapidly, and in order to stay competitive and relevant in this race, New Delhi will need to work with Beijing in order to develop capabilities, skills, and technology absorption capacity in the Indian ecosystem. Even the success of the Indo-U.S. initiatives launched during Indian Prime Minister Narendra Modi’s visit to Washington recently — including TRUST and COMPACT — may depend on India’s ability to match Chinese capabilities and New Delhi’s use of Chinese supply chains. While New Delhi and Washington may be hoping to limit Beijing’s influence, the building blocks of these initiatives may still rely on integration with Chinese supply chains.
The previous modus vivendi between India and China lasted 30 years and helped both countries navigate the post-Cold War world. In the current inflection point of global geopolitics, India and China will have to implement a new modus vivendi that can accommodate both cooperative and competitive elements in the relationship. The October 2024 agreement provides the right impetus and can be the start of a genuine reset.
Also read: The Trump Effect: Will India Lean Into the China Thaw in 2025?
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Image 1: GovernmentZA via Flickr
Image 2: Embassy of the People’s Republic of China in the United States of America
