Amidst efforts to mend strained relations, China appears to be employing a strategy of economic coercion against India, raising concerns about the sincerity of its "reset bid". This involves what some observers are calling a "silent blockade," characterized by the curbing of key exports to India, including rare earth magnets and chemical fertilizers.
These actions are viewed as a strategic tool to exert pressure on India, particularly in response to India's restrictions on Chinese economic engagement following border clashes. Since the deadly 2020 clash in Ladakh, India has taken steps to limit Chinese influence in its economy, including requiring government approval for investments from countries sharing a border with it and banning over 200 Chinese mobile apps on national security grounds.
The export denials are impacting India's manufacturing and agricultural sectors. The obstruction of rare earth magnets, crucial for various industries, is slowing down India's ambitions in high-tech manufacturing, a key component of the "Make in India" and Production-Linked Incentive (PLI) initiatives. Similarly, the hold-up of specialty fertilizers at Chinese ports is affecting India's agricultural sector at a time of heightened global food security concerns.
Furthermore, the reported blockade of tunnel boring machines, essential for a flagship infrastructure project co-funded by Japan, introduces both economic delays and diplomatic awkwardness. Direct flights between the two countries also remain restricted. From China's perspective, these restrictions have curbed its access to India's vast consumer market and investment space. The export denials, therefore, serve as a tit-for-tat response, an attempt to signal displeasure at India's protective economic posture, reminding India of the cost of economic decoupling.
Despite these tensions, diplomatic exchanges continue. India's Defence Minister Rajnath Singh and National Security Advisor Ajit Doval have recently visited China for meetings, including the Shanghai Cooperation Organisation (SCO) Summit. During these interactions, calls have been made to maintain positive momentum and avoid adding new complexities to the bilateral relationship.
While acknowledging constructive exchanges on bilateral relations, Rajnath Singh emphasized the importance of maintaining positive momentum and avoiding new complexities. He also urged China to take permanent action to resolve the border standoff.
This "informal blockade" occurs even as both countries have engaged in high-level dialogue and made agreements to rebuild bilateral ties. In late 2024, a border agreement led to a meeting between Prime Minister Narendra Modi and President Xi Jinping, resulting in military disengagement in Ladakh and a resumption of high-level dialogue on border management. Other agreements included the resumption of a religious pilgrimage in Tibet, data sharing on trans-border rivers, direct flights between India and China, and media exchanges.
The situation highlights the complex and multifaceted nature of India-China relations. While both countries seek to stabilize their border and enhance commercial collaboration, economic and security concerns continue to create friction. China remains a vital supplier of industrial goods to India, and bilateral trade reached a record US$136.2 billion in 2023. However, India's trade deficit with China has also increased, and India is seeking to attract Chinese companies to set up local manufacturing through joint ventures.
Whether the "informal blockade" is a temporary pressure tactic or a sign of a more fundamental shift in China's approach remains to be seen. How India responds to these economic challenges will be crucial in shaping the future trajectory of the relationship.
