India's evolving approach to China shifts from containment to calibrated reopening

New Delhi’s approach has gone from welcoming economic engagement with Beijing to containment to the latest calibrated reopening

As India prepares for the Brics summit less than two weeks away, relations with China are warming up. On July 22, Indian External Affairs Minister Subrahmanyam Jaishankar met his Chinese counterpart Wang Yi during the East Asia Summit; five days later, Foreign Secretary Vikram Misri visited China. Last week, Indian National Security Adviser Ajit Doval also visited Beijing, for border talks.

But India remains deeply ambivalent when it comes to economic engagement with China: it seeks Chinese capital, technology and expertise while fearing the shocks they may bring. Justifying the latest economic engagement with China, Jaishankar said India’s long-term objective was to compete with China in manufacturing.

After six years of sweeping curbs on Chinese investment, bilateral trade rose to US$151.1 billion in the financial year ended March 31. China remains India’s largest import source and has, after four years, displaced the United States as its top trading partner. India’s approach to engaging with China has evolved: from welcoming participation to containment after 2020 and, more recently, a calibrated reopening.

During Indian Prime Minister Narendra Modi’s first term and the early years of his second, India maintained a broadly open stance. Launched in 2014, the “Make in India” campaign sought to slash bureaucratic hurdles and attract foreign investment. During Chinese President Xi Jinping’s visit that September, both sides signed a five-year economic cooperation plan. Modi’s 2015 China visit yielded a further US$22 billion in commercial deals.

Economic engagement remained robust even after the 2017 Doklam stand-off. Both sides maintained senior economic dialogue, pursued the “China India Plus One” approach to projects in third countries and planned connectivity projects. Chinese investment in Indian start-ups grew twelvefold between 2016 and 2019, backing at least 18 of India’s 30 unicorns. In 2019, China proposed a manufacturing partnership. By early 2020, the stock of Chinese investment in India was estimated to exceed US$26 billion.

But that was also the year the turning point came. In April, India introduced a requirement of prior government approval for foreign direct investment (FDI) from countries it shared a land border with, ostensibly to block “opportunistic takeovers”. After the deadly Galwan Valley border clash, restrictions against Chinese businesses expanded. India banned Chinese apps on national security grounds, tightened public procurement rules for bidders and required security clearance for directors from border countries. Visa delays, regulatory raids and other pressures suffocated Chinese business.