With Beijing, New Delhi Is Negotiating for Machines, Not Reconciliation

The meeting between Narendra Modi and Xi Jinping confirms a selective doctrine: India buys from China the tools of its own industrialisation, without opening the capital door wide. On 12 September, on the sidelines of the BRICS summit in New Delhi, the two leaders underlined the need to address the "structural trade imbalance" and supply-chain issues 1. It was Xi's first visit to India in nearly seven years 2. For investors, the stakes are industrial, not diplomatic.

The bilateral deficit reached $112.16 billion in fiscal 2025-26, India's largest with any trading partner 2. In the first half of 2026, imports from China hit a record $79.41 billion 3. Their composition matters: electronic and telecom equipment, lithium-ion batteries, machinery, organic chemicals 3. This deficit is equipping Indian factories. Exports to China, meanwhile, rose 37.2% to $12.31 billion 3.

On capital, New Delhi is rationing the opening. Since the reform approved on 10 March 2026, only investors whose beneficial owners from a land-border country hold a non-controlling interest of up to 10% can use the automatic route 4. The stock of Chinese direct investment remains marginal: $2.51 billion, or 0.32% of cumulative equity inflows since 2000 4. New Delhi has, however, mandated faster processing of Chinese investment proposals in capital goods, electronic components and polysilicon 2.

The objection is real: dependency is leverage. In March, Beijing restricted its fertiliser exports, according to industry sources, to protect its domestic market according to analysts 5; deliveries of Chinese tunnel-boring machines and rare-earth magnets remain delayed or erratic 2. But that is precisely why New Delhi limits the automatic route to minority, non-controlling Chinese capital and targets import-substitution sectors.

The Bottom Line

The India-China thaw can benefit Indian manufacturers of electronics, components and capital goods, which gain access to Chinese machinery and inputs without ceding control, provided Beijing lets equipment and critical inputs (rare-earth magnets) through. It signals neither a broad opening to Chinese capital nor a geopolitical realignment.

What to watch: the path of the deficit in the second half, approvals of Chinese investment in components, and the signing of the full trade agreement with the United States.