When Foxconn recalled hundreds of Chinese engineers from a factory in India last month, reportedly following Beijing’s directions to curb technology transfer to its neighbor, it was a reminder of the uneasy ties between two of Asia’s largest economies.
But with both countries facing tariff heat from Washington, could economic challenges push Beijing and New Delhi toward reluctant cooperation, transforming their adversarial relationship?
That possibility will be tested over the weekend in Tianjin, where India’s Prime Minister Narendra Modi is due to meet China’s President Xi Jinping for the 25th Shanghai Cooperation Organization summit. It will be Modi’s first visit to China in seven years, after the deadly Galwan Valley clashes between Indian and Chinese soldiers in 2020 soured relations.
New Delhi and Beijing could engage in talks in Tianjin, as India’s foreign ministry has flagged the possibility of bilateral meetings on the sidelines of the summit.
India-China experts largely do not see the summit as the beginning of a long-lasting friendship between the two countries. “The suspicion of China runs deep in India,” said Amit Bhandari, senior fellow, energy, investments and connectivity, at think tank Gateway House. But in the face of U.S. tariffs and shifting supply chains, China and India find themselves edging toward each other.
During his two-day visit to Delhi, last week, Chinese Foreign minister Wang Yi said that India and China should view each other as “partners” rather than “adversaries or threats.”
“It is unlikely that Chinese partnership will become like the one India has with Russia or U.S.,” Bhandari said.
India enjoys a goods trade surplus with the U.S, standing at $45.8 billion as of 2024. On the other hand, it has a widening deficit with China, something it has been trying to curb but has been unable to do. India’s trade deficit with China was $99.2 billion for the year ended March 2025, up from about $85 billion the year before, with total imports from Beijing touching an all-time high of $113.45 billion.
“Our trade deficit concerns are two pronged. One is the actual size of the deficit. Two is the fact that the imbalance has continuously been widening year after year,” according to the Indian embassy in China. “We continue to engage the Chinese side for addressing market access issues.”
China’s close relationship with Pakistan is another sore point for India. According to a report from Stockholm International Peace Research Institute, China delivered major arms to 44 states in 2020–24, with nearly two-thirds of its arms exports, or 63%, going to Pakistan. China supplied 81% of Pakistan’s arms imports from 2020 to 2024, compared with 74% between 2015 and 2019, the report said.
The SCO meeting is unlikely to resolve disputes or heal old wounds between the two neighbors, according to experts. But Modi’s presence in Tianjin could be a signal of willingness to find common ground.
Economic necessity
New Delhi has sought to position itself as a manufacturing hub for global companies seeking to diversify supply chains away from China.
India, for instance, surpassed China as the top smartphone supplier to the U.S in the second quarter, while China’s share of smartphone exports to the U.S. dropped to just 25% from 61% a year earlier, according to research firm Canalys.
Still, the country has not been able to fully capitalize on the “China Plus One” opportunity partly due to trade barriers between New Delhi and Beijing, said Priyanka Kishore, principal economist at Asian economy and policy-focused think tank Asia Decoded.
“Countries aspiring to be China+1 destinations need to get their raw materials or intermediate goods from China until the time they can develop their own capabilities at home. Domestically India is not in position to produce and provide all intermediate goods and raw materials,” she said.
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Several industries in India are highly reliant on China.
“For normal chemical-based APIs (active pharmaceutical ingredients), China supplies 70% of India’s requirements while for biosimilar APIs it supplies almost 90%,” said Ajay Srivastava head of the Global Trade Research Initiative, adding that China is India’s key supplier of electronics, electricals, machinery and organic chemicals.
Electrical vehicles is another industry where India is highly reliant on Chinese supplies.
With a goal to curtail their crude import bill, the Indian government has set ambitious targets for adoption of electric vehicles. It aims EVs to account for 30% of new vehicle sales by 2030, up from 7.6% in 2024, according to data from the Indian government policy think tank Niti Aayog.
That’s a tall ask given most Indian EV manufacturers rely on China for supply of key elements such as rare earth magnets. “Our government has pushed the auto industry in a position where it relies on China for key components like rare earth magnets, lithium, cobalt … So essentially a key manufacturing industry is vulnerable to disruption,” Bhandari said.
Last week, during his visit to India, the Chinese foreign minister assured that his country will address the India’s need for rare earths, tunnel boring machines and fertilizers.
China also stands to gain from strengthening trade ties with its neighbor. India has banned several Chinese businesses from operating in the country. The ban has affected a diverse range of firms from e-commerce companies such as Shein to social media platform TikTok.
Access to the Indian market can be a big boost for Chinese companies at a time when there’s a slowdown in domestic consumption. India’s EV market, for instance, offers room for Chinese companies to grow as they face intense competition at home.
“BYD would love to open a factory in India, now that Vietnam’s VinFast has already been allowed. Chinese industries are dealing with overproduction and excess capacity and with the demand from US market shrinking they need other markets,” said Kishore.
In further sign of warming ties, following Wang’s visit, direct flights from India to mainland China, which had been suspended since the start of the Covid-19 pandemic in 2020, are set to resume. Both sides have agreed to reopen border trade at three designated trading points.
Indian companies such as Reliance Industries and Adani Group are also pursuing partnerships with Chinese companies, The Economic Times reported in July.
While the signs are positive, long-held suspicions and border disputes make it difficult to see the two countries as close partners. The SCO meeting will offer greater clarity on how in-step will the elephant and dragon’s tango will be — and for how long.
Source: CNBC