Written by: 中观PRO, Former official of the Policy Planning Department, China’s Ministry of Foreign Affairs

From 31 August to 1 September 2025, the 25th Shanghai Cooperation Organisation (SCO) Summit was held in Tianjin. During the event, Indian Prime Minister Narendra Modi, on his first visit to China in seven years, held a bilateral meeting with Chinese President Xi Jinping. The two leaders reaffirmed that China and India are partners, not rivals, stressing that their common ground far outweighs their differences.
The warming of Sino-Indian relations, which had been at a low ebb since the 2017 Doklam standoff, is reflection of short-term pragmatism as well as long-term strategic calculations on the part of both nations, India in particular.

I. The Indian Perspective

The immediate trigger was the U.S.'s sweeping tariff hikes, which had disregarded India's interests.
Since the summer of 2025, the U.S. has significantly raised tariffs on Indian goods to as high as 50%. This broad increase affects traditional labour-intensive sectors, including textiles, gems and jewellery, footwear, furniture, chemicals, and seafood, directly hitting India's export supply chains and its ability to sustain employment. Several institutions calculate that these new tariffs could knock 0.6-0.7 percentage points off India's annual GDP growth. Reuters also reported that India’s nominal growth and fiscal revenues would come under pressure, with manufacturers and SMEs feeling the brunt of a double squeeze from rising costs and falling demands. The Indian gems and jewellery and textile industries, which rely heavily on the U.S. market, are already seeing order reductions and production delays on the ground. Industry groups and media outlets predict that exports in these sectors could plummet by tens of percentage points, with some categories experiencing drops to the tune of 70%. The rupee also sank to a historic low within the week new tariffs took effect. Tariff negotiations between the U.S. and India have been fraught with the U.S.'s demand that India open its agricultural market, which is New Delhi’s bottom line.
In this context, resuming engagement with China in non-sensitive areas has become a tactical necessity. At the Tianjin meeting, India agreed to restore economic, trade, and border management discussions, including the resumption of direct flights and the normalisation of border trades. These moves would serve as pragmatic hedge against the 50% US tariffs. India’s intention is to leverage on the supply of intermediate and capital goods from China to alleviate the cost burdens and production-related pressures, brought about by the U.S. tariffs, on domestic manufacturing. By facilitating the movement of people and goods, India aims to stabilise orders and employment in its labour-intensive sectors.
Strategically, this is a move to play the "China card", by initiating economic and trade cooperation with China, India intends to strengthen its negotiating position with the U.S.

The mid-term driver is the pressure from India's domestic economic development and employment.
On the one hand, India's economic growth is projected to slow to 6.7% in the first quarter of the 2025 fiscal year. Private investment remains sluggish and manufacturing performance is weak. The economic growth rate for the entire fiscal year may drop to 6.3%, the lowest in five years.
On the other hand, the country's "baby boom" generation faces a massive employment gap. India's official Economic Survey 2023-24 set a challenging target: to absorb new entrants into the workforce, roughly 7.85 million new non-agricultural jobs must be created every year till 2030. Goldman Sachs estimates that to maintain a 6.5% Gross Value-Added (GVA) growth rate, approximately 10 million jobs need to be created each year between 2024/25 and 2029/30. Currently, India is grappling with consistently high youth unemployment, as the manufacturing sector struggles to absorb the labour force. According to a June 2025 labour survey, India's overall unemployment rate has risen to about 5.6%, with 10.2% to 18% of young people aged 15-29 unemployed (depending on statistical criteria). At the same time, a large number of workers are leaving the labour market due to a lack of non-agricultural job options.
To improve its economic situation and boost employment, India has little option but to strengthen economic and trade cooperation with China. First, China’s supply chain is indispensable in critical areas such as electric vehicle (EV) components, pharmaceutical raw materials, and renewable energy equipment. Approximately 70% of India’s solar equipment comes from China, and over 75% of its lithium-ion batteries and rare-earth magnets also depend on Chinese production capacity and resources. Last July, China's temporary restrictions on the export of rare-earth magnets, fertilisers, and tunnel boring machines directly forced Indian EV and consumer electronics manufacturers to cut production.
Second, from a cost and efficiency standpoint, the most realistic path for India to scale its labour-intensive industries over the next two to five years is to introduce or restore partnerships with China in non-sensitive areas. This is crucial for India in absorbing its large and job-hungry youth population. Such cooperation would cover material processing, contract manufacturing and the localisation of supporting industries, and enabling India to meet its job-creation targets.
Third, India’s domestic initiatives, such as the Employment Linked Incentives (ELI), are designed to create jobs in the manufacturing sector for first-time workers. If these initiatives are synchronised with equipment, components, and orders from China, it will be much easier to boost the annual net increase in non-agricultural jobs from less than 8 million to over 10 million.
Fourth, China's vast and growing consumer market is exactly what India urgently needs.
India's decision to open its economy in the non-sensitive sectors to China is a rational choice, taking into consideration India’s constraints in cost, time, and scale. This approach involves introducing Chinese capital into non-sensitive industries while continue to impose restrictions in sensitive sectors, such as telecommunications and critical minerals. The strategy is to leverage on China to boost production, and in turn, use that production to create jobs.

The long-term reason for the warming of Sino-Indian relations is the reality of a multipolar world and the rebalancing of India's strategic autonomy.
First, the worldview of India's elite appears to have shifted. This year's biggest change in the international landscape is the U.S. publicly acknowledging a multipolar world order. At the same time, the developments regarding Donald Trump and the U.S.-China trade war have made it rather clear that China can indeed challenge the U.S. and hold its own. Regardless of whether India sees itself as a global power, the existence of the two poles—the U.S. and China—is now a certainty. India can no longer pretend to ignore China's rise and must learn to coexist with it. Indian strategic community is gradually realising that trying to contain China's rise is neither realistic nor in India's best interest. Given China’s strength in economic, international influence and technology, the cost of confronting China would now far outweigh any potential benefits.
The same holds true for multilateral mechanisms. India recognises that cooperating with China in forums such as the Shanghai Cooperation Organisation (SCO) and BRICS is more beneficial for its own interests, as it allows India to help shape future international rules. India also realises that its efforts in promoting local currency settlements, calling for reforms to the international financial system, or addressing issues in energy and digital governance could gain traction only with China’s support.
At the same time, India’s pursuance of strategic autonomy is also a key factor at play. India has long based its foreign policy on this principle, which aims to avoid fully aligning with any single bloc, and in so doing, retain strategic flexibility. In the most recent past, India had deliberately adopted a pro-Western stance. Prime Minister Modi's frequent show of "intimacy" with Donald Trump made this intent clear. However, recent events have served as wake-up call for India. New US tariffs, demands for India to stop buying Russian oil, and the sudden warming of US relations with Pakistan all reminded India that in Sino-US long-term strategic competition, India could ill afford to align completely with one side.

II. The Chinese Perspective
Strategically, China aims to secure India's cooperation to form a united front against the U.S. Such attempts at forming a "united front" is one of the Chinese Communist Party's "three magic weapons" and a core principle of its foreign policy. Amidst escalating U.S.-China competition, Beijing's strategy is to "make as many friends as possible", and India is a crucial part of this. The image of China, Russia, and India standing together at the Tianjin SCO Summit had sent a powerful signal to the West.
Furthermore, Chinese diplomacy places a great emphasis on stabilising its periphery. As the prevailing China’s axiom stipulates that, "relations with big powers are priority, relations with peripheral countries are critical." Since India is both a big power and a neighbour, it has naturally been a major focus of China's regional diplomatic strategy. In recent years, China's policy towards India has increasingly adopted a two-pronged approach: managing competition while expanding cooperation. This involves moving from front-line stand-offs to behind-the-scenes negotiations to mitigate risks of border conflicts. At the same time, China is keen to promote and expand bilateral trade to deepen mutual interests. It’s fair to say that China has high expectation for deeper economic cooperation with India, believing it to be a key to potentially diminish or even resolve Sino-India border disputes.
The dynamics between China and India have shifted to one of layered and faceted competition and complementarity. As China moves up the value ladder of global supply chain, there are no more concerns about a direct Sino-India economic rivalry based on population dividends. Sino-India economic relationship has evolved to become a more nuanced and mutually beneficial one. For instance, in the new energy, electric vehicle, and electronics sectors, Chinese companies are securing access to the Indian market through investments, supplying components, and transferring technology.

III. Outlook
At the Tianjin meeting, Prime Minister Modi personally invited Chinese President Xi to visit India next year, a move that signals that positive, high-level interactions are likely to maintain momentum. At the same time, it remains to be seen whether Sino-Indian relationship can truly "warm up" and stay that way.
Firstly, India’s short-term focus on playing the "China card" against the U.S. will undoubtedly face significant challenges. While India’s foreign policy champions strategic autonomy, it is also highly opportunistic. It remains to be seen how long such “autonomy” will last if the U.S.’s attitude towards India shifts once more. It's also an open question whether the deeply ingrained anti-China mindset of India's strategic elite and their ambition to achieve great power status by leveraging Sino-U.S. competition can truly be overcome.
Moreover, the border issue remains the main pain point in Sino-India relations. The unresolved historical border disputes will continue to limit strategic trust between the two nations. No matter how much economic cooperation and people-to-people exchange progress, repeated frontline frictions will erode political trust and directly inhibit the recovery and deepening of bilateral trade.

‍

From 31 August to 1 September 2025, the 25th Shanghai Cooperation Organisation (SCO) Summit was held in Tianjin. During the event, Indian Prime Minister Narendra Modi, on his first visit to China in seven years, held a bilateral meeting with Chinese President Xi Jinping. The two leaders reaffirmed that China and India are partners, not rivals, stressing that their common ground far outweighs their differences.

The warming of Sino-Indian relations, which had been at a low ebb since the 2017 Doklam standoff, is reflectionof short-term pragmatism as well as long-term strategic calculations on the part of both nations, India in particular.

‍

I. The Indian Perspective

The immediate trigger was the U.S.'s sweeping tariff hikes, which had disregarded India's interests.

Since the summer of 2025, the U.S. has significantly raised tariffs on Indian goods to as high as 50%. This broad increase affects traditional labour-intensive sectors, including textiles, gems and jewellery, footwear, furniture, chemicals, and seafood, directly hitting India's export supply chains and its ability to sustain employment. Several institutions calculate that these new tariffs could knock 0.6-0.7 percentage points off India's annual GDP growth. Reuters also reported that India’s nominal growth and fiscal revenues would come under pressure, with manufacturers and SMEs feeling the brunt of a double squeeze from rising costs and falling demands. The Indian gems and jewellery and textile industries, which rely heavily on the U.S. market, are already seeing order reductions and production delays on the ground. Industry groups and media outlets predict that exports in these sectors could plummet by tens of percentage points, with some categories experiencing drops to the tune of 70%. The rupee also sank to a historic low within the week new tariffs took effect. Tariff negotiations between the U.S. and India have been fraught with the U.S.'s demand that India open its agricultural market, which is New Delhi’s bottom line.

In this context, resuming engagement with China in non-sensitive areas has become a tactical necessity. At the Tianjin meeting, India agreed to restore economic, trade, and border management discussions, including the resumption of direct flights and the normalisation of border trades. These moves would serve as pragmatic hedge against the 50% US tariffs. India’s intention is to leverage on the supply of intermediate and capital goods from China to alleviate the cost burdens and production-related pressures, brought about by the U.S. tariffs, on domestic manufacturing. By facilitating the movement of people and goods, India aims to stabilise orders and employment in its labour-intensive sectors.

Strategically, this is a move to play the "China card", by initiating economic and trade cooperation with China, India intends to strengthen its negotiating position with the U.S.

‍

The mid-term driver is the pressure from India's domestic economic development and employment.

On the one hand, India's economic growth is projected to slow to 6.7% in the first quarter of the 2025 fiscal year. Private investment remains sluggish and manufacturing performance is weak. The economic growth rate for the entire fiscal year may drop to 6.3%, the lowest in five years.

On the other hand, the country's "baby boom" generation faces a massive employment gap. India's official Economic Survey 2023-24 set a challenging target: to absorb new entrants into the workforce, roughly 7.85 million new non-agricultural jobs must be created every year till 2030. Goldman Sachs estimates that to maintain a 6.5% Gross Value-Added (GVA) growth rate, approximately 10 million jobs need to be created each year between 2024/25 and 2029/30. Currently, India is grappling with consistently high youth unemployment, as the manufacturing sector struggles to absorb the labour force. According to a June 2025 labour survey, India's overall unemployment rate has risen to about 5.6%, with 10.2% to 18% of young people aged 15-29 unemployed (depending on statistical criteria). At the same time, a large number of workers are leaving the labour market due to a lack of non-agricultural job options.

To improve its economic situation and boost employment, India has little option but to strengthen economic and trade cooperation with China. First, China’s supply chain is indispensable in critical areas such as electric vehicle (EV) components, pharmaceutical raw materials, and renewable energy equipment. Approximately 70% of India’s solar equipment comes from China, and over 75% of its lithium-ion batteries and rare-earth magnets also depend on Chinese production capacity and resources. Last July, China's temporary restrictions on the export of rare-earth magnets, fertilisers, and tunnel boring machines directly forced Indian EV and consumer electronics manufacturers to cut production.

Second, from a cost and efficiency standpoint, the most realistic path for India to scale its labour-intensive industries over the next two to five years is to introduce or restore partnerships with China in non-sensitive areas. This is crucial for India in absorbing its large andjob-hungry youth population. Such cooperation would cover material processing, contract manufacturing and the localisation of supporting industries, and enabling India to meet its job-creation targets.

Third, India’s domestic initiatives, such as the Employment Linked Incentives (ELI), are designed to create jobs in the manufacturing sector for first-time workers. If these initiatives are synchronised with equipment, components, and orders from China, it will be much easier to boost the annual net increase in non-agricultural jobs from less than 8 million to over 10 million.

Fourth, China's vast and growing consumer market is exactly what India urgently needs.

India's decision to open its economy in the non-sensitive sectors to China is a rational choice, taking into consideration India’s constraints in cost, time, and scale. This approach involves introducing Chinese capital into non-sensitive industries while continue to impose restrictions in sensitive sectors, such as telecommunications and critical minerals. The strategy is to leverage on China to boost production, and in turn, use that production to create jobs.

The long-term reason for the warming of Sino-Indian relations is the reality of a multipolar world and the rebalancing of India's strategic autonomy.

First, the worldview of India's elite appears to have shifted. This year's biggest change in the international landscape is the U.S. publicly acknowledging a multipolar world order. At the same time, the developments regarding Donald Trump and the U.S.-China trade war have made it rather clear that China can indeed challenge the U.S. and hold its own. Regardless of whether India sees itself as a global power, the existence of the two poles—the U.S. and China—is now a certainty. India can no longer pretend to ignore China's rise and must learn to coexist with it. Indian strategic community is gradually realising that trying to contain China's rise is neither realistic nor in India's best interest. Given China’s strength in economic, international influence and technology, the cost of confronting China would now far outweigh any potential benefits.

The same holds true for multilateral mechanisms. India recognises that cooperating with China in forums such as the Shanghai Cooperation Organisation (SCO) and BRICS is more beneficial for its own interests, as it allows India to help shape future international rules. India also realises that its efforts in promoting local currency settlements, calling for reforms to the international financial system, or addressing issues in energy and digital governance could gain traction only with China’s support.

At the same time, India’s pursuance of strategic autonomy is also a key factor at play. India has long based its foreign policy on this principle, which aims to avoid fully aligning with any single bloc, and in so doing, retain strategic flexibility. In the most recent past, India had deliberately adopted a pro-Western stance. Prime Minister Modi's frequent show of "intimacy" with Donald Trump made this intent clear. However, recent events have served as wake-up call for India. New US tariffs, demands for India to stop buying Russian oil, and the sudden warming of US relations with Pakistan all reminded India that in Sino-US long-term strategic competition, India could ill afford to align completely with one side.

II. The Chinese Perspective

Strategically, China aims to secure India's cooperation to form a united front against the U.S. Such attempts at forming a "united front" is one of the Chinese Communist Party's "three magic weapons" and a core principle of its foreign policy. Amidst escalating U.S.-China competition, Beijing's strategy is to "make as many friends as possible", and India is a crucial part of this. The image of China, Russia, and India standing together at the Tianjin SCO Summit had sent a powerful signal to the West.

Furthermore, Chinese diplomacy places a great emphasis on stabilising its periphery. As the prevailing China’s axiom stipulates that, "relations with great powers are priority, relations with peripheral countriesare urgency." Since India is both a great power and a neighbour, it has naturally been a major focus of China's regional diplomatic strategy. In recent years, China's policy towards India has increasingly adopted a two-pronged approach: managing competition while expanding cooperation. This involves moving from front-line stand-offs to behind-the-scenes negotiations to mitigate risks of border conflicts. At the same time, China is keen to promote and expand bilateral trade to deepen mutual interests. It’s fair to say that China has high expectation for deeper economic cooperation with India, believing it to be a key to potentially diminish or even resolve Sino-India border disputes.

The dynamics between China and India have shifted to one of layered and faceted competition and complementarity. As China moves up the value ladder of global supply chain, there are no more concerns about a direct Sino-India economic rivalry based on population dividends. Sino-India economic relationship has evolved to become a more nuanced and mutually beneficial one. For instance, in the new energy, electric vehicle, and electronics sectors, Chinese companies are securing access to the Indian market through investments, supplying components, and transferring technology.

III. Outlook

At the Tianjin meeting, Prime Minister Modi personally invited Chinese President Xi to visit India next year, a move that signals that positive, high-level interactions are likely to maintain momentum. At the same time, it remains to be seen whether Sino-Indian relationship can truly "warm up" and stay that way.

Firstly, India’s short-term focus on playing the "China card" against the U.S. will undoubtedly face significant challenges. While India’s foreign policy champions strategic autonomy, it is also highly opportunistic. It remains to be seen how long such “autonomy” will last if the U.S.’s attitude towards India shifts once more. It's also an open question whether the deeply ingrained anti-China mindset of India's strategic elite and their ambition to achieve great power status by leveraging Sino-U.S. competition can truly be overcome.

Moreover, the border issue remains the main pain point in Sino-India relations. The unresolved historical border disputes will continue to limit strategic trust between the two nations. No matter how much economic cooperation and people-to-people exchange progress, repeated frontline frictions will erode political trust and directly inhibit the recovery and deepening of bilateral trade.