It’s not a thaw yet, but there are certainly signs of some warming in the India-China relationship. Recently, there has been an uptick in dialogue to resolve outstanding issues along two friction points in Eastern Ladakh. Meanwhile, there’s a fresh debate within India on economic engagement with China.

In July, Indian External Affairs Minister S. Jaishankar and China’s top diplomat Wang Yi had two meetings. The first hinted at a softening of tone from Beijing, with Wang calling for “properly handling and controlling the situation in the border areas, while actively resuming normal exchanges.” Following the second meeting, the Chinese statement emphasized the need to “work for new progress in consultations on border affairs.” Since then, there have been two meetings of the Working Mechanism for Consultation & Coordination on India-China Border Affairs, the most recent occurring last week.

“Agreed To Turn Over A New Leaf”

The Chinese readout following the conversation was positive, stating that both sides had “agreed to work together to turn over a new leaf in the border situation at an early date.” The statement added that both sides “exchanged in-depth views on relevant issues in border areas, further narrowed differences, expanded consensus, and agreed to strengthen dialogue and consultation, accommodate each other’s legitimate concerns, and reach a mutually acceptable solution at an early date.”

The Indian readout was more contained, indicating that “the two sides had a frank, constructive and forward-looking exchange of views on the situation along the Line of Actual Control (LAC) to narrow down the differences and find early resolution of the outstanding issues.” The impact of these meetings on actual resolution of the issues in Depsang and Demchok remains to be seen.

The Question Of Chinese Investments

The Economic Survey released before the new NDA government’s budget in July suggested that India might be more open to Chinese investments in the future. Investments from China have faced government scrutiny since the issuance of Press Note 3 in April 2020, seen as an effort to direct Chinese capital into desirable domains. However, the standoff in Ladakh and the subsequent clashes in the Galwan Valley in June 2020 diminished the appetite for Chinese investments. That situation appears to be changing now.

Earlier this year, it was reported that since April 2020, the Indian government has approved 124 investment proposals from bordering countries and rejected 201. Around 200 proposals are still pending. Many of these proposals were from China. While scrutiny under Press Note 3 remains active, there has been some easing.

The MG Motor-JSW Deal

In March, the long-discussed joint venture between MG Motor India and JSW Group was finally sealed. It involved Chinese auto giant SAIC Motor divesting a 51% stake. In May, reports emerged that the government had begun approving Chinese investment proposals with Indian firms on a case-by-case basis. In July, it was reported that the government had notified electronics and automobile manufacturers about plans to establish an inter-ministerial panel to accelerate the approval process for investment proposals from Chinese firms in Indian companies. The assessment would require the proposals to meet certain conditions, such as the significance of investment and technology for enhancing the local manufacturing supply chain, exclusion of Chinese nationals from the management and board of the investee firm, and the Indian entity holding a majority stake in any joint venture.

At the same time, reports indicated that the Indian government was looking to fast-track visas for Chinese technicians and engineers, given that delays were hurting Indian industry. In late August, the Economic Times reported that the inter-ministerial panel had approved five to six investment proposals involving Chinese entities in the electronics manufacturing sector.

A Good Approach, But Not Without Perils

Being open to Chinese capital and talent, particularly those that aid the development of India’s manufacturing sector and deepen linkages with global value chains, is a pragmatic and prudent approach. It is in India’s larger strategic interest to do so. However, this should not be an ad hoc process. Establishing a new investment review mechanism with clear guidelines, conditions, and timelines is imperative for greater predictability for industry and adequate democratic oversight. Such a process should also entail defining a narrow set of sub-sectors as critical from a national security perspective and therefore walled off from Chinese entities. This list can evolve dynamically following periodic reviews.

From the perspective of Indian industry,