Opportunity for India and China to Turn a Diplomatic Thaw Into an Economic Reset

• India-China ties show signs of cautious improvement after years of tension since Galwan.

• Reviving the Strategic Economic Dialogue could reopen cooperation in trade, technology and infrastructure.

• Both sides must address concerns over trade practices, investment rules and border stability.

• Chinese inputs may support India’s export-led manufacturing.

• A stable reset could benefit the wider Global South.

After years of tension following the 2020 Galwan clash, India and China appear to be cautiously moving toward a more constructive phase in their relationship. The shift is still fragile, but recent diplomatic language suggests both sides may now be looking for ways to stabilise ties and reopen channels of cooperation.

A notable sign came in June, when India’s National Security Adviser Ajit Doval met China’s top diplomat Wang Yi. Doval described India and China as “partners, not rivals”, a phrase that marked a clear departure from the adversarial tone that had dominated relations for much of the past five years. Wang also called for the faster revival of dialogue mechanisms and stronger exchanges in areas such as trade, finance and other economic fields.

This warmer tone is significant because the Galwan clash had severely disrupted earlier attempts to improve relations. Before the 2020 confrontation, Prime Minister Narendra Modi and Chinese President Xi Jinping had sought to steady the relationship through informal summits in Wuhan in 2018 and Mamallapuram in 2019. Those meetings were designed to manage differences and prevent border tensions from overwhelming the broader relationship. Galwan, however, swept away much of that progress and pushed the two countries into a prolonged period of mistrust.

It has taken five years of diplomatic and military negotiations for the atmosphere to begin changing again. The improved tone eventually led to a Modi-Xi meeting on the sidelines of the Shanghai Cooperation Organisation summit in Tianjin last August. While one meeting cannot erase years of suspicion, it does suggest that both governments recognise the need to prevent tensions from permanently blocking engagement.

One of the most important questions now is whether India and China can revive the Strategic Economic Dialogue, or SED. Last held in September 2019, the SED once served as a key platform for discussing cooperation in infrastructure, energy conservation, environmental protection, policy coordination, pharmaceuticals and high technology. It also included areas such as artificial intelligence, mobile technology and investment in major infrastructure projects.

Reviving this mechanism could be useful, but the dialogue would need to reflect the realities of a very different global economy. Since 2019, the international trading system has become far more fragmented. US tariffs and Washington’s growing use of trade, energy and finance as strategic tools have affected both China and India. In this environment, a renewed SED cannot simply return to its old agenda. It would need a wider and more practical focus.

For such a dialogue to succeed, both sides would have to address long-standing concerns. China would need to take India’s worries about trade practices and industrial policy seriously. India, in turn, would need to provide greater clarity on restrictions affecting Chinese investment. Without such steps, economic engagement could remain limited, even if political language improves.

India also needs to look at its trade deficit with China in a more strategic way. A deficit is not automatically harmful if imports help strengthen domestic production and exports. India has trade deficits with countries such as Japan and South Korea, yet it has also benefited from export-oriented investment from those partners. The key issue is not simply how much India imports, but whether those imports support industrial growth.

This is where Chinese capital, machinery and components could become useful. As India expands export-led manufacturing, it may need more inputs from China, not fewer. The India-assembled iPhone is one example of how imported components can feed into domestic production and global exports. If managed carefully, Chinese investment in non-sensitive sectors could help India build stronger manufacturing capacity.

For India, this lesson is especially important as US policy becomes more protectionist. New Delhi once hoped that access to the vast American consumer market would help power its growth, but Washington’s current approach suggests that India cannot rely solely on Western markets. It will need a broader strategy that includes non-Western economies and the Global South.

Closer economic cooperation with China could help India reach those markets more effectively. It could also bring wider benefits to developing countries, many of which would welcome better coordination between Asia’s two largest economies. Stronger China-India economic engagement could support trade, investment and reform in global economic institutions.

The opportunity is clear, but it depends on stability. A lasting economic reset will only be possible if peace and calm are maintained along the border. If both sides can manage their disputes while expanding practical cooperation, India and China may be able to build a relationship that serves not only their own interests but also the broader Global South.

The time and tone have already changed. The challenge now is to turn this opportunity into meaningful action.