Improved China ties welcome but not at cost of India's interests: Brahma Chellaney

India’s decision to ease foreign direct investment rules for companies linked to neighbouring countries has sparked fresh debate on the country’s China policy, with strategic affairs expert Brahma Chellaney warning that New Delhi appears to be moving towards economic accommodation with Beijing despite unresolved border tensions.

The Union Cabinet, chaired by Prime Minister Narendra Modi, cleared a revision to foreign investment rules that allows overseas investors with up to 10 per cent beneficial ownership from countries sharing a land border with India to invest through the automatic route. The policy change relaxes restrictions imposed in 2020 after tensions with China escalated along the Line of Actual Control.

Countries sharing land borders with India include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.

‘SECOND U-TURN IN CHINA POLICY’

Reacting to the development, Chellaney argued that India’s China policy has undergone a series of sharp shifts in recent years.

“This shift began much before Trump’s Iran war. It's okay to improve relations with China, but what is not okay is to make abrupt reversals in policy without any debate,” he said during a discussion on India Today.

According to him, the government had dramatically altered its approach to China after the 2020 military standoff in eastern Ladakh.

“In 2020, after we discovered China's stealth territorial encroachments in eastern Ladakh, India restricted Chinese investments, banned apps, tightened procurement rules and called for reducing economic dependence on China,” he said.

“Now a second U-turn is underway. Those same restrictions that were imposed in 2020 are quietly being dismantled without any public debate.”

Chellaney said India’s approach to China has moved “from engagement to confrontation and now back towards accommodation” within a span of just five to six years.

‘ECONOMIC NORMALISATION DESPITE BORDER TENSIONS’

He also questioned the strategic logic behind restoring economic engagement while tensions along the border remain unresolved.

“India had pledged that relations with China cannot normalise until the border normalises. This was said multiple times,” Chellaney said.

“What we are seeing now is the opposite, economic normalisation despite the border situation not being normal.”

The analyst argued that India risks creating a contradiction in its broader strategy.

“India is trying to balance China geopolitically while becoming more and more dependent on China economically. How can this contradiction hold indefinitely?” he asked.

CONCERNS OVER STRATEGIC VULNERABILITY

Chellaney warned that deeper Chinese involvement in key sectors could create long-term strategic risks.

“Allowing deeper Chinese penetration of sectors such as power grids or EV infrastructure increases China's potential leverage over Indian policy decisions,” he said.

According to him, economic ties with China cannot be viewed purely through a commercial lens.

“Economic integration with China is never purely economic. China has repeatedly used trade and economic leverage as geopolitical tools against countries such as Australia, South Korea, Mongolia and Lithuania,” he said.

He also pointed to the widening trade imbalance between the two countries.

“In China's trade surplus with India now vastly exceeds India's total annual defence budget. This is not just an economic statistic — it is a strategic vulnerability for India,” Chellaney said.

WHAT THE NEW FDI RULES ALLOW

Under the revised policy approved by the Union Cabinet, investors from countries sharing land borders with India will be allowed to invest through the automatic route if their beneficial ownership is limited to 10 per cent and they do not exercise controlling stakes.

Earlier, any investment involving such countries required mandatory government approval under Press Note 3, introduced in April 2020 during the Covid-19 pandemic to prevent opportunistic takeovers of Indian companies.

The government says the changes are aimed at boosting investment flows, enabling technology partnerships and supporting domestic manufacturing under the Atmanirbhar Bharat initiative.

TRADE TIES REMAIN STRONG DESPITE TENSIONS

Even after restrictions introduced in 2020, economic ties between India and China have continued to expand.

China remains India’s second-largest trading partner, with bilateral trade reaching 127.7 billion dollars in 2024–25.

However, the relationship remains heavily skewed in China’s favour. India imported goods worth 113.45 billion dollars from China during that period, while exports stood at 14.25 billion dollars, leaving a trade deficit of 99.2 billion dollars.

Analysts say the latest policy shift could mark an early sign of a broader recalibration in India’s economic engagement with China, even as strategic tensions between the two neighbours remain unresolved.

- Ends

Tune In