India and China, two of the world's largest economies, are increasingly engaging in complex trade relations that present both opportunities and challenges for investors. Recent developments suggest a cautious recalibration of ties, with potential benefits for specific sectors.
Current State of Trade
In fiscal year 2024, China once again became India's top trading partner, surpassing the United States after a two-year gap. Bilateral trade between the two nations stood at $118.40 billion, a 4% increase from the $113.83 billion recorded in FY23. However, this robust trade relationship is marked by a significant trade imbalance. In June 2025, India's exports to China were $1.38 billion, while imports from China reached $9.52 billion, resulting in a trade deficit of $8.14 billion. For the fiscal year 2024-2025, India's trade deficit with China hit a record $99.2 billion.
India's primary exports to China include petroleum products, telecom instruments, and iron ore. Conversely, India's main imports from China consist of electronics components, telecom instruments, and computer hardware. This import-export dynamic highlights India's reliance on Chinese goods, particularly in key sectors like electronics.
Recent Developments and Future Prospects
Recently, there have been positive signs of easing tensions and a push towards stabilizing bilateral ties. India and China have agreed to reopen border trade through three designated passes — Lipulekh, Shipki La, and Nathu La — to boost cross-border economic activity. Additionally, both countries will resume direct flights and update the Air Services Agreement, as well as ease visa processes for tourists, businesses, and media. These steps aim to strengthen people-to-people contact and promote trade, investment flows, and exchanges. Both sides have also pledged to restart bilateral dialogue mechanisms, including the India-China High-Level People-to-People Exchanges Meeting in 2026.
However, it's important to note that these developments are unfolding amid a complex geopolitical landscape. Some analysts view the improved relations as a tactical move by both countries, driven by a need to counter global uncertainties and trade frictions. Despite the easing of some export restrictions by China, India remains focused on self-reliance and reducing its dependence on Chinese imports.
Potential Beneficiaries
Several sectors stand to benefit from improved India-China trade relations:
Investment Considerations
For investors, the evolving India-China trade dynamic presents a mixed bag. While increased trade and investment flows could create opportunities in specific sectors, it's crucial to consider the existing trade imbalance, geopolitical factors, and the long-term strategic goals of both countries. Investors should closely monitor policy changes, trade agreements, and the progress of dialogue mechanisms to assess the potential risks and rewards. Additionally, a focus on companies that contribute to India's self-reliance and export capabilities may prove beneficial.
Overall, while challenges remain, the recent steps towards easing tensions and promoting trade between India and China could pave the way for increased economic cooperation and new opportunities for investors in specific sectors.
