As India looks toward Chinese investments, it should ponder over the possible strategic implications for the state of relations with China at the border. There is a case to be made for New Delhi to de-link economic opportunities from the current state of India-China relations along the LAC. By linking the two, India may hope to incentivise greater Chinese concessions in the remaining two friction areas along the border–Depsang and Demchok. But such a move could inadvertently grant China greater strategic leverage overall. To paraphrase the logic of India’s hope, “If you want access to our markets, then you have to disengage and step back at the LAC.” If the Chinese are genuinely interested in trading, and if the Indian economy could really benefit from enhanced trade, why shouldn’t India explore opportunities to strengthen trade ties while simultaneously improving the border situation?

This view is based on the assumption that China is eager to invest in the Indian market and willing to compromise on security and strategic matters to facilitate this. While the first part of this assumption may hold some truth, the latter is much more questionable.

If the People’s Republic of China (PRC) truly prioritised economic gains over security objectives vis-à-vis India, it would have demurred from initiating the standoff in the first place—especially during a trade war and a global pandemic. Additionally, it would have made compromises at the LAC at any point since then, particularly during the post-pandemic recovery phase. The assumption of Chinese economic priorities vis-à-vis India is founded on two conditions. First, it reflects our hopes for a material leverage over China that could be used implicitly in bilateral negotiations. Second, Chinese officials and diplomats have repeatedly conveyed Beijing’s desire to restore and advance economic engagement, while reproaching India to separate the border issue from overall ties. This is often interpreted as evidence of leverage that could be wielded.

Also read: ‘Not rethinking Chinese investments as advised by Economic Survey,’ says trade minister Piyush Goyal

Underlying message

However, Chinese statements advocating for economic engagement despite the Galwan clash should not be seen as solely economic arguments. Chinese decision-makers and analysts recognise that the implications of an economic upgrade in relations are primarily strategic rather than merely economic. A resumption of ‘normal’ economic ties would enable the PRC to declare a ‘triumphant’ victory, interpreted as India’s acceptance of the Chinese fait accompli of 2020. Thus, when Beijing urges India to focus on ‘development’ and ‘economic’ goals, the underlying message appears to be: ‘Accept the new conditions at the LAC and move on.’

While some may hope that India can adroitly grow alongside China for the next decade or two before shifting to competing—akin to Deng Xiaoping’s strategy of growing with the US before later competing—Chinese opinions, as evident in op-eds and social media debates, are sensitive to this prospect. There is a critical view of China’s economic linkages with an India that could upgrade its industrial and manufacturing capabilities. Chinese concerns in the summer of 2023, particularly in the wake of Prime Minister Narendra Modi’s official visit to the US, regarding a ‘reverse-China’ card and India’s ‘Deng Xiaoping in US moment,’ indicate an acute awareness of this dynamic—a factor that will guide future Chinese economic engagement with India. China, after all, has compelling strategic reasons to not allow economic linkages from strengthening a regional adversary and make the same mistake as the US made vis-à-vis China.

For decades, China has exploited the attraction of its investments for strategic ends. Nowhere else has this been more evident than in China-Philippines relations, where Manila, under Rodrigo Duterte, sought to enhance economic ties with Beijing in the hope of encouraging greater strategic restraint from China in the South China Sea. Not surprisingly, Beijing refused to play ball and pursued its security goals at the cost of both economic ties as well as secondary strategic objectives, such as weakening Manila-Washington ties. By the end of Duterte’s term, public and establishment opinion toward China had strongly shifted in response to enhanced Chinese coercion. To make matters more complicated, Manila now worries about both economic and territorial coercion in the South China Sea.

Also read: Tensions high, but India’s lapping up Chinese goods. Why trade deficit’s hit record $101 bn

Beyond economic survey

India’s current contemplation of normalising economic ties is being hastily interpreted in China as a sign of India’s newfound recognition of its manufacturing and industrial weaknesses, alongside the perceived failures of initiatives like ‘Make in India’ and the China-plus-one pivot. Instead of relenting on security goals at the LAC for economic gains, such assessments encourage Beijing to see foreign investments in India as sources of leverage. In this view, India still needs China more for its economic growth and transformation than the other way round. It is unclear how prevalent these views are in Zhongnanhai, but it is reasonable to assume that they are influential and will likely strengthen in a post-normalisation scenario.

There are indeed compelling reasons for India to achieve pragmatic economic exchanges, as articulated in the Economic Survey—such as the inescapability of Chinese supply chains, the ineffectiveness of tariffs, and India’s dependence on imports from China for its manufacturing sector. However, it may be more prudent to de-link these tactical economic objectives from the larger strategic reality of ‘non-normal’ India-China relations at the border. The latter is, after all, still characterised by continuing deterioration in the form of Beijing’s increasingly assertive territorial claims on Arunachal Pradesh, and relentless militarisation along the border.

The refreshingly honest and reflective Economic Survey report rightly notes, “Striking the right balance between the trilemma of trade with China, investment by China, and India’s territorial and non-territorial integrity and security is part of the strategy of growing India’s Mittelstand.” Nevertheless, the remit of the survey was primarily economic. Striking the right balance within the trilemma requires a similar survey but through a security lens.

Sidharth Raimedhi is a Fellow at the Council for Strategic and Defense Research (CSDR), a New-Delhi-based Think Tank. He tweets @SRaimedhi and can be reached [email protected]. Views are personal.

(Edited by Prashant)