Asian Peace Programme: by Kishore Mahbubani

India-China ties are warming, the time to capitalise is now

Sanjaya Baru

Sanjaya Baru is Distinguished Fellow, United Services Institution of India. He was advisor to Prime Minister Manmohan Singh and Director for Geo-economics & Strategy, International Institute of Strategic Studies.

1  September,  2026

When Ajit Doval met China’s top diplomat Wang Yi in June, New Delhi’s national security adviser called China and India “partners, not rivals" and said a stable relationship “serves the common interests of both sides”.

Wang, for his part, called for the two countries “to accelerate the resumption of dialogue mechanisms and promote exchanges” in trade, finance and other fields.

These warm statements were a sharp departure from the adversarial tone that had bedevilled ties since Chinese and Indian troops clashed at Galwan in the summer of 2020.

Before Galwan, Beijing and Delhi had been actively trying to repair a relationship frayed by frequent, low-level border clashes. Indian Prime Minister Narendra Modi and China’s Xi Jinping met for a summit in Mamallapuram – a historic Indian port city with a long history of Buddhist exchanges with China – in October 2019, having already met in Wuhan the year before. But Galwan swept all that away.

It took five years of diplomatic and military negotiations to change the tone of the relationship, culminating in a Modi-Xi summit on the sidelines of the Shanghai Cooperation Organisation gathering in Tianjin last August.

That thaw has now provided an opportunity to revive the India-China Strategic Economic Dialogue (SED), the mechanism launched in 2011 by Manmohan Singh and Wen Jiabao that produced six rounds of talks before 2019.

India originally pushed for the SED to address its ballooning trade deficit with China. The dialogue’s working groups focused on six key areas: infrastructure (including Chinese investment in high-speed rail and railway modernisation), energy conservation and environmental protection, hi-tech cooperation in AI, mobile technology and other areas, pharmaceuticals, and policy coordination.

The last meeting, in September 2019, ended on an upbeat note, with Delhi stating that the SED had “emerged as a crucial mechanism to facilitate bilateral trade and investment flows, and enhance economic cooperation”.

The big question now is whether it still can. The answer is probably yes, even though the world has changed dramatically since 2019. Disruptions to the multilateral trading system caused by US President Donald Trump’s tariffs and Washington’s weaponisation of trade, energy and finance have hurt China and India both.

But a revived SED would need a wider ambit in this newly fractured world and some long-standing issues still need to be addressed.

China must convincingly address Indian concerns about its aggressive trade and industrial policies, while India must clear the air regarding Chinese questions over targeted foreign investment restrictions.

India should also look at the trade deficit issue from a holistic perspective. A trade relationship defined by higher imports is not, on its own, detrimental. India has a trade deficit with partner countries like Japan and South Korea, for instance, but has secured export-oriented investment from them.

Hence, if India can grow its own manufacturing and export sectors, Chinese imports can become an asset rather than a liability. As Delhi expands export-oriented manufacturing – with the India-assembled iPhone, for example – it may well need to import more components and machinery from China, not less.

Vietnam shows how this can work: its trade deficit with China reached US$115 billion in 2025, up from US$83 billion the year before. Over the same period, its exports to the United States climbed from US$137 billion to US$194 billion. Imports and exports, in other words, can rise together.

The SED could help achieve such an outcome, steering Chinese capital into India’s export-led manufacturing. Delhi is already, albeit very cautiously, exploring the possibility of Chinese investment in non-sensitive sectors and its finance ministry has suggested export-oriented Chinese investment as a way of dealing with the trade imbalance.

With production costs rising at home, Chinese manufacturers may well find a lower-cost Indian base attractive – particularly as a springboard into South Asian, African and Middle Eastern markets. Handled well, such investment would let Chinese imports feed into greater Indian exports, creating mutually beneficial economic synergy.

India was once counting on the huge American consumer market to power its growth, but US Deputy Secretary of State Christopher Landau made clear in March that

Washington had learned its lesson, telling an audience in Delhi: “We are not going to make the same mistakes with India that we made with China 20 years ago”. Washington was not “going to let you develop all these markets, and then, the next thing we know, you are beating us in a lot of commercial things”, he said at this year’s Raisina Dialogue in the Indian capital.

In this new, fractured world, India needs a new strategy to reach out to non-Western markets.

Harvard Professor Meg Rithmire and co-author Peter Cowhey have argued that the US should try to work with China to re-industrialise itself. If that logic holds for America, it holds for India too.

Closer economic cooperation with China could also open new markets in the Global South. There’s no doubt that most Global South countries would welcome closer cooperation between China and India, as it could help strengthen the global economy and improve the functioning of multilateral economic and financial institutions.

A new positive China-India economic synergy could profoundly help the wider Global South.

The time has clearly come for policymakers in both countries to understand that major win-win possibilities exist. If they both accept this, a revived SED can be more meaningful than the earlier rounds of sectoral dialogues.

That means returning to an earlier logic that characterised the bilateral relationship, based on the understanding that a pending resolution of the border issue and “peace and tranquillity” along the Line of Actual Control allows the wider relationship to move forward.

The tone of ties has already shifted. The time to act has, decisively, arrived.