Despite high-level talks and diplomatic efforts, significant challenges persist in India-China business relations. While both nations express a commitment to fostering economic cooperation, on-the-ground realities reveal ongoing strains that impact trade and investment.
One of the primary challenges is the significant trade imbalance between the two countries. In the fiscal year 2024-25, India's trade deficit with China widened to $99.2 billion, a substantial increase from $85.1 billion in the previous year. This deficit accounts for approximately 35% of India's total trade imbalance. India's imports from China have surged, reaching a record $12.5 billion in a single month, driven in part by Apple suppliers relocating iPhone production to India. However, these companies still heavily rely on Chinese components, which sustains high export levels from Beijing. Conversely, India's exports to China have largely consisted of raw materials, while China dominates India's import basket across various industrial sectors. These sectors include pharmaceuticals, electronics, construction materials, renewable energy, and consumer goods.
Several factors contribute to this trade dynamic. China's dominance in supplying key products, sometimes providing over 75% of India's needs, creates a dependence that raises concerns about potential leverage during political tensions. For instance, India relies heavily on China for antibiotics, silicon wafers, flat panel displays, solar cells, and lithium-ion batteries. This dependence is a structural issue, with China dominating India's import landscape across multiple industrial categories.
In response to the growing trade deficit and concerns over dependence, India has increased anti-dumping scrutiny on goods from China. There have been increased applications for investigations into goods from China and Vietnam, reflecting concerns over cheap imports flooding domestic markets.
Investment flows between India and China have also experienced fluctuations. Foreign direct investment (FDI) from China to India saw a peak in 2015, but has since declined, particularly after fiscal year 2019-20. This decline is attributed to India's revised FDI policy for countries sharing borders, implemented in response to border tensions. Despite both countries being top investment destinations, mutual investment flows have not kept pace with trade volumes.
Despite these challenges, there are ongoing efforts to improve relations and explore economic cooperation. High-level dialogues have resumed, with discussions focusing on stabilizing the border and enhancing commercial collaboration. Both countries have agreed to resume direct passenger flights and reopen border trade passes. These steps aim to reduce barriers and risks for trade and investment. Chinese Ambassador to India Xu Feihong emphasized that despite ups and downs, China-India relations have been "overwhelmingly defined by friendly cooperation" and stressed the need to strengthen dialogue, trade, and exchanges.
However, on-ground business relations remain strained. China continues to hold rare earth magnet import applications, while India maintains Press Note 3 and BIS restrictions. This impasse significantly impacts Indian auto and electronics companies, forcing them to seek costly alternatives.
Looking ahead, the trajectory of India-China business relations will depend on addressing mutual concerns, managing geopolitical tensions, and pursuing cooperation where possible. Resolving the trade imbalance, ensuring market access for Indian goods, and easing national security anxieties will be crucial steps in fostering a more balanced and stable economic relationship.
