India is open to re-configuring relations with China but a resolution of the border issue in eastern Ladakh is essential for progress
For some time now, there have been signs that India wants a reset of its relations with China, however, no concrete steps are visible as of now. The formal Indian position, articulated repeatedly by the External Affairs Minister Dr S Jaishankar, is that there can be no forward movement till there is a final resolution of the border issue in eastern Ladakh.
Last month, the Ministry of Finance in its annual Economic Survey, called for increased Foreign Direct Investment (FDI) flows from China to increase India’s participation in the global supply chain and its exports. This was a surprise because in 2020, as a fallout of the eastern Ladakh tensions, India had placed stringent restraints on FDI from China.
The Survey noted that if India were to take advantage of the prevailing “China plus one” strategy, it needed to either integrate into Chinese supply chains or use FDI from China “for boosting India’s exports to the US,” in the same way other East Asian economies had done in the past. It added that “It is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value”.
Both sides continue to hold fast to their respective positions—India insisting that the status quo ante be restored in eastern Ladakh to normalise relations, while China insists that there is no real problem there and India should set aside issues relating to the border and forge good relations with China.
Whether these views of the Ministry of Finance have an impact on current policy remains to be seen, on the surface, however, there is little change. Both sides continue to hold fast to their respective positions—India insisting that the status quo ante be restored in eastern Ladakh to normalise relations, while China insists that there is no real problem there and India should set aside issues relating to the border and forge good relations with China.
In early July, S Jaishankar met his Chinese counterpart Wang Yi at the sidelines of the Shanghai Cooperation Organisation (SCO). Jaishankar noted on X that he and his counterpart “discussed early resolution of remaining issues in border areas.” And that they had agreed to “redouble efforts through diplomatic and military channels to that end”, adding that “respecting the LAC and ensuring peace and tranquility in the border areas is essential.” The key to good relations, he said, was the “three mutuals”—“mutual respect, mutual sensitivity, and mutual interest”.
A press release by the Ministry of External Affairs noted that the two ministers agreed “that the prolongation of the current situation on the border is not in the interest of either side.” It noted that Jaishankar emphasised “the importance of fully abiding by relevant bilateral agreements, protocols and understandings reached between the two Governments in the past.”
Three weeks later, the two met again in Vientiane, Laos; the official MEA press release noted that their discussions focused on the need to find “an early resolution of the remaining issues along the Line of Actual Control to stabilise and rebuild bilateral relations.” It reiterated the importance of the “three mutuals.”
Just how much of a gap there remained between the Indian and Chinese positions was evident from the Chinese press release of the meeting which ignored the border issue and noted that “the two sides should take a rational approach to rise above differences and frictions to promote the improvement as well as stable and sustainable development of China-India relations.”
The release cited Jaishankar as saying that the two sides had “broad converging interests” and had to “face the shadow brought by the situation in the border areas”. But the Indian side was ready “to take a historic, strategic, and open perspective to find solutions to the differences.”
At the apex level, Prime Minister Modi in April 2024 had given an interview to Newsweek magazine where he mentioned that in his view the relationship with China was “important and significant.” He went on to add that it was his “belief that we need to urgently address the prolonged situation on our borders so that the abnormality in our bilateral interactions can be put behind us.” He said that he hoped and believed that “through positive and constructive bilateral engagement at the diplomatic and military levels, we will be able to restore and sustain peace and tranquillity in our borders.”
In eastern Ladakh, through their military and diplomatic talks, the two sides have been able to create “no patrol zones” in three of the six areas which the Chinese had blockaded in 2020 and prevented Indian forces from patrolling—the Kugrang river valley, Gogra, and Pangong Tso. As part of the settlement, Indian troops vacated the Kailash heights overlooking Spanggur Tso.
As of now both sides also continue to maintain substantial additional forces on either side of the LAC.
But Chinese blockades in two important areas remain—the Depsang bulge in the north and the Charding-Ninglung Nala area in the south. As of now both sides also continue to maintain substantial additional forces on either side of the LAC. Only with complete disengagement will the two sides de-escalate in eastern Ladakh.
The 21st round of Corps Commanders level meetings to discuss the issue took place at the Chushul-Moldo border meeting point in 2024. And parallel to this, the 29th meeting of officials under the rubric of the Working Mechanism for Consultation and Coordination (WMCC) took place on 27 March in Beijing. There have been no further institutional meetings aimed at resolving the border issue, though Wang and Jaishankar expressed hope in Astana that a meeting of the WMCC would take place soon.
Even today, the goal of the surprise Chinese action in 2020 remains a mystery. In 2019, Xi Jinping met Prime Minister Modi for their second informal summit in Chennai, an event that presaged good relations in the coming period. 2019 was also the year in which Chinese investments into India peaked in terms of the number of transactions (527). The peak year for investments, US$859 million was 2015.
But then, they conducted a sudden mobilisation, violative of the 1996 Military Confidence Building Agreement, and established blockades at several points in eastern Ladakh to prevent Indian troops from patrolling parts of the LAC. They did not attack any Indian post as such and the Galwan events that led to the loss of 20 Indian soldiers were more by way of a situation gone out of control than any planned action.
The Indian reaction was quick and tough. Besides banning hundreds of Chinese apps, the India issued Press Note 3 which placed restrictions on investments from countries sharing a land border with India. Though ostensibly aimed at preventing “opportunistic takeovers/acquisitions of Indian companies due to the COVID 19 pandemic”, its real effect was palpable on FDI flows from China which had coincidentally undertaken the eastern Ladakh incursions at that time. A parliamentary question in March 2022 revealed that 347 applications had been received in the previous two years and of these 66 were approved and 193 rejected.
Besides banning hundreds of Chinese apps, the India issued Press Note 3 which placed restrictions on investments from countries sharing a land border with India.
Despite all this, India-China trade continued to grow, and in 2023-24, it has reached US$ 118.4, making China India’s largest trading partner ahead of the United States. There was a huge imbalance in this with India exporting just US$16.67 billion worth of goods and importing US$101.7 billion. India remain heavily reliant on China for critical products like telecom parts, pharmaceutical ingredients, and advanced technology components.
The Economic Survey’s call for seeking enhanced FDI from China was also an admission by the government that the Production Linked Investment (PLI) scheme that it had launched in 2020 to strengthen India’s manufacturing industries and make them more globally competitive was not performing as well as expected.
As of now in terms of relations with India, the ball is in the Chinese court. India has made it clear that it is not willing to normalise ties till issues are settled in eastern Ladakh. China continues to ignore that demand while calling for better ties. Meanwhile, both sides continue to maintain additional forces along the LAC as well as their build-up on either side of the border.
Manoj Joshi is a Distinguished Fellow at the Observer Research Foundation
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Manoj Joshi is a Distinguished Fellow at the ORF. He has been a journalist specialising on national and international politics and is a commentator and ...
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