Modi's India: China's New Friend or Bitter Foe?

Will India's new prime minister create tension or instill trust between Asia's two great powers?

Narendra Modi has taken the helm in New Delhi—and with the freedom of action provided by a parliamentary majority unmatched in India for three decades. So what sort of policy will he pursue toward China?

The question is worth exploring for several reasons.

Modi is an ardent nationalist who believes that India is destined to become a great power and has chided previous Indian governments for supineness toward Beijing. Moreover, India and China are longtime adversaries. The mutual professions of brotherly love in the 1950s proved short-lived, and the 1962 war was a humiliating debacle for New Delhi. In India’s national security establishment, and the country more generally, China is considered the principal threat.

So far, Modi hasn’t pursued an ideologically charged foreign policy. He invited South Asian leaders to his May inauguration; and, his ideological allegiance to the Hindu nationalist Rashtriya Swayamsevak Sangh notwithstanding, the guests included Pakistan’s Prime Minister, Nawaz Sharif. Likewise, Modi spoke at length to Chinese Prime Minister Li Keqiang when Li telephoned to offer his congratulations; and both men agreed on the importance of strengthening bilateral ties. Modi also reaffirmed the previous Indian government’s invitation to Chinese president Xi Jinping, who will visit this year and told India’s new ambassador to China that it’s his “historic mission” to improve Sino-Indian relations. This month, Modi received China’s foreign minister Wang Yi.

Modi is not, however, breaking new ground. His predecessor, Manmohan Singh, visited China in October 2013, and the trip included the signature of “Border Defense Cooperation Agreement” designed to avert crises. Chinese premier Li Keqiang was in India—his first visit abroad after taking office—last May. On the economic front, two-way trade amounted to nearly $65 billion in 2013 compared to a mere $3 billion in 2000. China has become India’s top trade partner, though the substantial surpluses it racks up ($31 billion last year) rankle New Delhi.

Modi doubtless sees China as the main antagonist but he knows as well as anyone that the balance of power heavily favors Beijing. India’s GDP is about 35 percent of China’s, its defense budget less than 37 percent. Whether it’s infrastructure, foreign-investment inflows, living standards, education, technology or military might, China leads by a wide margin. So initiating a confrontational policy toward Beijing would be a fool’s errand. Whatever else Modi may be, he’s no fool.

Among the problems between India and China is the border dispute, and twice last year (in April and December) Chinese troops crossed the line of control in the western (Aksai Chin) sector, offering reminders that it remains a potential source of war. For China, the Aksai Chin region (in the western sector) matters most: it connects Xinjiang and Tibet, regions in which anti-Han nationalism has been increasing. New Delhi maintains that China occupies 43,000 square kilometers of Indian land in the west; in the east, Chinese claims encompass 90,000 square kilometers of Arunachal Pradesh.

Beijing would likely accept a swap agreement under which India forfeits its claims in Aksai Chin in exchange for China’s doing the same in Arunachal. But given his nationalist convictions, Mr. Modi won’t go for this formula—certainly not anytime soon. There’s no reason for him to ignite a firestorm of controversy, even assuming, for argument’s sake, that he believes that some version of an east-for-west deal is the only realistic solution. Perhaps there will be some such bargain if he governs for more than one term. But India must improve its economic and military position relative to China if it is to have adequate leverage in negotiations. Modi, a shrewd bargainer, knows this.

The upshot is that Modi’s strategy toward China will likely consist of the following elements: