Over the past few months, New Delhi’s relations with Beijing have improved. It would be a mistake to read this as a sign of greater strategic trust. A better explanation is that India is managing its relationship with China sector by sector. This is clearest when looking at where India has relaxed its regulatory restrictions on Chinese involvement in Indian industry.
Over the past year, limited regulatory changes have reopened narrow channels of economic engagement in industries where India cannot compete on technology or cost. Most notably, four Chinese-linked electrical-power equipment manufacturers with production facilities in India have been temporarily allowed to bid for selected transmission projects to ease supply shortages. But these changes stop well short of a broader liberalisation. Restrictions on Chinese participation in telecommunications and digital platforms remain in place, and Chinese investment still faces screening introduced in 2020, albeit with some exceptions. These developments do not signal a strategic reset. Instead, they show India distinguishing between sectors where Chinese involvement is economically necessary and those it considers too sensitive.
The standard explanation is that India simply hasn’t made up its mind about China – whether to treat Beijing mainly as an economic partner or as a security threat – and so keeps its options open, shifting with circumstances. But that account looks for India’s indecision in in speeches and diplomatic gestures. The clearer signal is in the regulations. These regulations should therefore be understood as more than the result of unresolved debate in New Delhi. They allow India to gain select economic benefits from China while withholding broader strategic trust.
Consider diplomacy first. In the past few months relations with Beijing have improved. High-level engagement has been renewed, and some travel restrictions have been eased. This has been interpreted as either the beginning of a genuine reset or merely temporary moderation of tensions. However, neither interpretation fully fits the evidence. While relations have warmed, the underlying regulatory architecture remains largely intact. Investment screening has not been dismantled. Chinese apps banned after China-India border clashes, including TikTok, remain prohibited. Although the two sides eased tensions along their border in 2024, unresolved security concerns remain. What has changed is the tone of the relationship more than its institutional foundations.
Consider capital next. In 2020, India introduced a foreign direct investment regulation – named Press Note 3 – that requires government approval for investment from countries sharing a land border with India. Amendments this year, however, introduced a limited exception, allowing some small investments from adjoining countries without prior government approval. Formally, the measure applies equally to all such neighbours. In practice, however, China dominates this category, making the rule function largely as a China-specific screening mechanism. The result is flexible regulation without a shift in India’s security posture.
Finally, consider trade. India still relies heavily on Chinese inputs in pharmaceuticals, electronics and solar manufacturing. New Delhi has introduced measures limiting that dependence, including anti-dumping duty – a tariff on imports sold below market value – in the solar sector and requirements to use local products in other strategically important industries. The result is not an attempt to sever trade with China, but a policy of managing immediate dependence while creating incentives for domestic substitution over time.
These represent three distinct regulatory approaches toward China operating simultaneously.
They have come from different parts of the Indian state yet follow a remarkably similar pattern: managing exposure to China sector by sector rather than through a single overarching strategy. This evidence is circumstantial rather than conclusive. Bureaucratic inertia, sector-specific lobbying, or incremental policymaking could plausibly produce a similar outcome without deliberate coordination. Even so, the consistency of the pattern makes simple coincidence less convincing.
India remains uncertain about China, and that is unlikely to change. Uncertainty is likely to remain a defining feature of the relationship. Looking at the fine print, this uncertainty increasingly appears to have been built within administrative structures that can outlast governments or diplomatic cycles. If that is correct, India’s China policy may prove more durable, and less legible from any single diplomatic signal, than the language of ‘thawing’ and ‘hardening’ usually suggests.
For India’s partners, Australia included, this argues for caution in interpreting individual policy developments. Allowing a limited number of Chinese-linked firms to participate in power equipment tenders does not necessarily indicate a broader strategic rapprochement. Equally, maintaining restrictions in digital sectors does not necessarily imply a uniformly harder line. Both are consistent with a regulatory approach that differentiates between sectors rather than treating the relationship with China as a single policy question.
