India and China are engaging in a cautious recalibration of their trade ties, marked by Beijing's recent decision to lift export restrictions on critical materials such as fertilisers, rare earth minerals, magnets, and tunnel boring machines. This significant development, following recent diplomatic discussions between External Affairs Minister S. Jaishankar and Chinese Foreign Minister Wang Yi, signals a pragmatic shift towards cooperation amidst global economic uncertainties. While this thaw includes easing visa restrictions, discussing direct flights, and reopening religious pilgrimages, it represents a calculated opening driven by mutual interests in supply chain stability rather than a full restoration of trust.

The renewed engagement comes against a backdrop of complex geopolitical dynamics, notably the pressure exerted by the United States. Former President Donald Trump's administration had imposed significant tariffs on Indian goods, including a penalty related to India’s purchases of Russian oil, which strained US-India relations. This friction, coupled with a temporary US-China trade truce, has inadvertently pushed Delhi to re-evaluate its economic strategy and seek avenues for stability with Beijing, despite persistent border disputes and a substantial trade imbalance. India’s trade deficit with China reached a record $99.2 billion in FY2024-25, highlighting India's deep structural dependency on Chinese imports, particularly in electronics and consumer durables.

Despite the diplomatic overtures, significant challenges persist, particularly concerning technology transfer and market access. While India actively seeks joint ventures with Chinese firms to build local manufacturing capacity and secure crucial components for its "Apple-type" electronics ecosystem and EV ambitions, Beijing is imposing its own "gatekeeping" on outbound technology. Deals involving Chinese companies like Haier and PG Electroplast, aiming for technology transfer, have reportedly stalled due to Chinese regulatory scrutiny. This mirrors India’s own Press Note 3 policy, which tightened scrutiny on Chinese FDI, creating a symmetrical but complex environment where both nations carefully control the flow of capital and know-how, balancing economic imperatives with national security concerns.

Key Indicators

China's lifting of export restrictions on vital industrial inputs (rare earths, fertilisers) to India, indicating a strategic, albeit limited, economic de-escalation.
Record India-China trade deficit of $99.2 billion in FY2024-25, showcasing India's increasing reliance on Chinese components and finished goods.
Progress on India-China joint ventures in manufacturing (e.g., Dixon Technologies with Longcheer Intelligence) alongside observed delays in technology-intensive deals (e.g., Haier, PG Electroplast), signaling Beijing's strategic control over tech transfers.
Resumption of bilateral exchanges including visas, direct flights, and religious pilgrimages (Kailash Mansarovar Yatra) after multi-year freezes, indicating a cautious, step-by-step normalisation of people-to-people ties.

Regional Perspective

The current India-China trade thaw is uniquely influenced by external geopolitical pressures, specifically the United States' trade policies under the Trump administration. While Washington sought to align with Delhi to counter Beijing, its punitive tariffs on India, contrasted with a more lenient approach towards China (driven by concerns over global oil prices and European pushback), inadvertently incentivized India to hedge its bets and seek economic predictability with its largest trading partner, China. This delicate balancing act underscores India's strategic autonomy and its need to secure critical supply chains irrespective of broader geopolitical alignments. For global professionals, this means understanding that India's engagement with China is less about ideological alignment and more about pragmatic economic necessity, offering unique opportunities for market entry and supply chain diversification for those who can navigate this complex, externally-influenced dynamic.

Analysis

Experts characterize the evolving India-China relationship as "management, not reconciliation." While India, through External Affairs Minister Jaishankar, insists that border peace is the fundamental basis for trust, Beijing prefers to de-link business from political and territorial disputes. This enduring gap defines the ceiling on normalisation, even as both sides pursue economic engagement. The US wildcard further complicates Delhi’s calculus: a temporary US-China trade truce may calm global markets but diminishes India's leverage, while punitive US tariffs against India push Delhi to diversify and hedge harder, including with China.

Technology remains a key battlefield. India is keen on joint ventures that facilitate genuine technology transfer to build domestic manufacturing depth, as articulated by figures like Amitabh Kant, who advocates revisiting policies like Press Note 3 to allow calibrated Chinese investment. However, Beijing's "gatekeeping" on outbound technology, particularly in areas like EV and semiconductor components, means that India will likely face long, arduous negotiations over know-how, not just final assembly rights. This "tech trust gap" is evident in incidents like CATL instructing Foxconn to withdraw Chinese engineers from Indian facilities, slowing skill transfer.

For businesses, the implications are clear: India’s ambition for self-reliance ("Atmanirbhar Bharat") will involve a painful short-term de-risking from Chinese inputs, as noted by Ajay Srivastava of GTRI. Companies investing in India must be prepared for potential supply chain disruptions and higher initial costs as domestic capacities are built. Yet, ignoring China as a source of capital and technology for components would make India’s industrial scale-up slower and more expensive. The strategic challenge for Delhi is to thread this needle: cushioning the immediate economic pain while maintaining momentum towards greater self-sufficiency and balancing security concerns with economic realities. This complex, high-stakes coexistence, marked by limited trust and conditional engagement, defines the current Indo-Sino economic landscape.