It's not a thaw yet, but there are certainly signs of some warming in the India-China relationship. Of late, there has been an uptick in dialogue to resolve outstanding issues along two friction points in Eastern Ladakh. At the same time, there is a fresh debate underway within India on economic engagement with China.
July witnessed two meetings between the Indian External Affairs Minister S. Jaishankar and China's top diplomat Wang Yi. The first of these had indicated a softening of tone from Beijing. While eschewing remarks about putting the border issue in the "appropriate position", Wang called for "properly handling and controlling the situation in the border areas, while actively resuming normal exchanges". Following the second one, the Chinese statement talked about the need to "work for new progress in consultations on borderaffairs." Since then, within a month, there have been two meetings of the Working Mechanism for Consultation & Coordination on India-China Border Affairs. The most recent of these took place last week.
"Agreed To Turn Over A New Leaf"
The Chinese readout following the conversation was rather positive. It said that both sides had "agreed to work together to turn over a new leaf in the border situation at an early date". It further added: "The two 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 much more contained. It said 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
Meanwhile, the Economic Survey released before the new NDA government's budget in July indicated that India could be more open to Chinese investments in the future. Investments from China have had to face government scrutiny since the issuance of Press Note 3 in April 2020. The notification was seen as an effort by the government to direct Chinese capital in desirable domains. However, the standoff in Ladakh and the subsequent killing of Indian soldiers during the clashes in the Galwan Valley in June 2020 extinguished any appetite for Chinese investments. That situation seems 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 said to be pending with the government. A large number of these proposals were from China. While the scrutiny under Press Note 3 remains active, there has been some easing.
The MG Motor-JSW Deal
For instance, in March, the long-discussed joint venture between MG Motor India and JSW Group was finally sealed. It entailed Chinese auto giant SAIC Motor divesting a 51% stake.
Subsequently, in May, reports emerged that the government had begun moving on 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. Then 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 fact, in India's larger strategic interest to do so. This is not to argue that there isn't any need for scrutiny. The External Affairs Minister is right to argue, as he did at a public forum last week, that given the current geopolitical scenario and India's peculiar challenges with China, it is "common sense that investments from China should be scrutinised". However, this should not be an ad hoc process. It is imperative to establish a new investment review mechanism with clear guidelines, conditions and timelines. This will engender greater predictability for industry, and ensure adequate democratic oversight. Such a process should also entail delineating 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.
That said, from the perspective of Indian industry, working with Chinese entities and being reliant on Chinese capital is likely to always remain a perilous endeavour. Politics and security have always come first in the India-China dynamic. Events over the past seven years since the Doklam stand-off have only further entrenched this trend. In addition, given the structural fault lines between the two sides, volatility is likely to remain a feature of the India-China relationship. The risks for industry, therefore, are always likely to remain high.
India Must Know What It Wants
Finally, while we are in a moment of policy churn, it is imperative for India's political elite and strategic affairs community to deliberate on what it is that we desire in our relationship with China. Many have talked about the need for a new modus vivendi. But what are the contours of this new, desirable state of affairs that we wish to arrive at? And what does India need to do to get there? These are questions that need deeper yet urgent reflection, for policy to proceed with purpose and pragmatism rather than being reactive.
(Manoj Kewalramani is the Chairperson of the Indo-Pacific Studies Programme at the Takshashila Institution.)
Disclaimer: These are the personal opinions of the author