India is cautiously reopening economic channels with China as diplomatic ties show signs of improvement, Economic Times reported.

National Security Adviser Ajit Doval’s visit to Beijing for talks with Wang Yi has coincided with the return of Chinese-linked capital into India. More than $500 million has entered the country within three months of the government relaxing parts of its post-Galwan investment regime. 

This marks the strongest revival of Chinese-linked investment flows since 2020, ahead of Xi Jinping’s likely participation in the BRICS summit in New Delhi.

The renewed investment flows do not indicate a return to the pre-2020 era of unrestricted Chinese business activity. Instead, India has adopted a measured framework that allows selected investment and industrial cooperation while maintaining scrutiny over strategic sectors and sensitive ownership structures.

The government continues to stress that peace and stability along the Line of Actual Control remain essential for normal ties, and border tranquillity is seen as a prerequisite for broader engagement.

Since late 2024, India and China have resumed direct flights, reopened business travel, restarted border trade and expanded diplomatic dialogue. Foreign Minister S Jaishankar’s recent discussions with Wang Yi included not only political issues but also market access, supply chains and trade imbalances. This reflects a deliberate effort to stabilise ties after years of confrontation.

Press Note 3, introduced in April 2020, had required government approval for all investments from countries sharing a land border with India, primarily targeting China. The restrictions slowed Chinese investment sharply, leaving many proposals pending for years.

However, India’s manufacturing ambitions, particularly in electronics, electric vehicles, renewable energy and advanced manufacturing, remained deeply connected to Chinese technologies and supply chains. This forced policymakers to reconsider the framework.

In May this year, the government introduced significant relaxations. Investors with non-controlling Chinese or land-border-country ownership of up to 10% were allowed to invest through the automatic route.

The beneficial ownership test was shifted to the investor entity level, reducing compliance hurdles for global funds with limited Chinese exposure.

Certain sectors were also brought under a time-bound approval framework. As a result, 29 proposals worth nearly ₹4,900 crore have already been reported, spanning IT, AI, manufacturing, pharmaceuticals, data centres, communication services and transport. The capital has come through entities registered in the US, Mauritius, Singapore, Japan, South Korea, Luxembourg and the Cayman Islands.

The easing reflects both economic realities and diplomatic considerations. Indian industry has argued that blanket restrictions on Chinese-linked investment impose costs on domestic manufacturing. Economists such as Sajjid Chinoy have suggested that attracting Chinese investment into Indian manufacturing may be more productive than relying solely on tariffs. The government appears to have accepted part of this argument while retaining safeguards.

India’s new playbook favours structures where Indian companies retain control while Chinese firms contribute technology, manufacturing expertise and supply-chain access.

The Vivo-Dixon joint venture exemplifies this model, with Dixon holding a majority stake and Vivo as a minority partner. Similar structures have emerged with HKC and Longcheer, resembling the earlier JSW-MG automobile transaction. This approach allows India to access Chinese know-how without compromising strategic control.

Diplomacy and economics are moving together. Since the Modi-Xi meeting in Kazan in 2024, ties have gradually thawed. Modi’s visit to Tianjin for the SCO summit, resumed flights, reopening of border trade and supply-chain discussions all point to deliberate stabilisation.

Yet challenges remain. India continues to run a trade deficit of over $100 billion with China, and unresolved border disputes persist despite relative stability.

Xi Jinping’s potential visit to India for the BRICS summit would symbolise this shift. His presence would coincide with the revival of Chinese-linked investment flows and India’s pragmatic approach of selective engagement.

The $500 million already invested is modest compared to India’s overall needs, but it signals direction. India and China appear to be moving from confrontation towards cautious cooperation, balancing economic engagement with national security safeguards.

Doval’s Beijing trip and the revival of investment flows are interconnected developments. As political channels reopen and summit diplomacy gathers pace, capital is beginning to follow. Whether this leads to a larger rapprochement will depend on the durability of border stability and the willingness of both sides to manage differences. For now, before Xi’s likely visit, Chinese-linked money is already pouring into India.

Agencies